November 30, 2010

Ethanol: Is it the Right Thing

Lately I have been very interested in how the introduction of ethanol has affected the United States and other countries around the world. This article talks about the negatives of ethanol production and who it is affecting because of it. One of the main issues with ethanol is that we produce it through corn. It is produced through industrial fermentation, chemical processing and distillation of the corn. The issue is that due to ethanol being produced at such a high level currently, a lot of corn is needed. This increase in demand for ethanol leads to a higher equilibrium price as shown in the graph below.

The demand curve shifted to the right due to the increased demand which led to an equilibrium shift from E1 to E2. E2 implicates a higher equilibrium price. In developing countries like Mexico, prices for corn skyrocketed and consumers in these countries are unable to pay a higher price. In 2008, the price of corn increased 110 percent from where it was nine months prior. With demand increasing by so much, a lot more supply is needed and many United States farmers are unable to keep up with the increase. If we want to reduce this threat to developing countries, we need to either use different products to create the ethanol like wheat for example. Doing this will help out these developing countries that have been hurt due to the corn price increase so that these people will not be struggling anymore.

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