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Saturday, October 30, 2010
Extra Credit! Is there a relationship between the production of Ethanol and the Price of Corn?
Comparison of Ethanol production (on left) and the price of corn (on right) over roughly the same time period...Is there a relationship? Extra credit on the next test if you can offer an supportive and/or alternative explanation.
Now that graph is mis-leading and a bad reference to gain perspective.
But simple logic would support the following...
- government influence encouraging the use of ethanol creates a demand for ethanol which means that more ethanol will eventually be created which means a chunk of the worlds corn that was not previously being used for ethanol will be used for ethanol. Thus some previous use of corn must be out bid, resulting in a increased price or cost of corn.
Yes.
ReplyDeleteNow that graph is mis-leading and a bad reference to gain perspective.
But simple logic would support the following...
- government influence encouraging the use of ethanol creates a demand for ethanol which means that more ethanol will eventually be created which means a chunk of the worlds corn that was not previously being used for ethanol will be used for ethanol. Thus some previous use of corn must be out bid, resulting in a increased price or cost of corn.
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