Wednesday, April 30, 2008

A thought on the economics of biofuels

How much does it cost to add alcohol to your gasoline? A part of that cost must be the added cost you pay for your food because less food and feed is produced as land is converted to produce crops for biofuel. It is not just the added price you pay for your corn on the cob or bread, because the cost of food grains has gone up. You also pay more for your meat, because livestock consume a lot of feed grain per pound of meat on the table, and the cost of feed grains has also gone up. Ideas such as subsidizing the production of biofuel crops, or legislating requirements for alcohol content in fuel may turn out to be very expensive if there is no elasticity in the supply of food and feed grains.

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