The law of supply and demand has become a staple in economic thought throughout the United States. Using the basic model, a higher supply of corn in the marketplace would dramatically reduce the costs of ethanol production. While this is the conventional wisdom, is this the reality for the consumer?
The corn supply in the United States has increased dramatically since 1970. Even in a year of drought, the amount of corn produced is greater today than 45 years ago. Part of the reason is more acres devoted to the growing of corn for agriculture and biofuel development. Tax subsidies have made this possible, allowing farmers to grow corn below cost while making a profit.
This subsidy system has reduced the cost of corn, thereby reducing the cost of production of ethanol for fuel. Even as an additive in states during the winter to combat CO2 emission, the supply of corn has a dramatic impact on the final cost of ethanol fuel.
Ethanol fuel costs are also driven by the costs of traditional fossil fuels, http://carinsurance-deals.com/progressive/, as ethanol production is heavily dependent on oil and natural gas. As fuel costs increase, the final cost to consumers for ethanol must increase too.