Ethanol Mandates Congress has passed laws requiring that a certain percentage of retail gasoline be from ethanol produced from corn. How would this destroy wealth?
This regulation is mandating the movement of corn from a higher value use such as food, sugar, etc to a lower value use of gasoline (If gasoline was the highest value use you would not require a mandate!) In addition, the required use of ethanol means that petroleum from oil is not being refined. The mandate moves a high valued asset, oil, into lower, unrefined, uses. [Note: The use of oil also causes pollution, an additional cost to society. If refiners would choose to use ethanol if they bore these pollution costs, then wealth may have been created.
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The sacrifice ratio is
A) the amount of output lost when the inflation rate is reduced by one percentage point. B) the percentage reduction in inflation when output falls one percentage point below potential. C) the percentage change in employment when output declines by one percentage point. D) the number of percentage points that the unemployment rate rises when output declines by one percentage point.
Suppose that Dianne Lindsay spends all her income on two goods, A and B, in a manner in which the marginal utility to price ratios are not equal, MUa/Pa is greater than MUb/Pb. If at that time the price of A is higher than the price of B, then she
a. is already maximizing her total utility and should make no change b. should increase her purchases of B and decrease her purchases of A because the price of A is higher c. should increase her purchases of B and decrease her purchases of A because the marginal utility of A is higher d. should lower the price of good A relative to good B e. should increase her purchases of A and decrease her purchases of B