1A) There are two groups that benefit from promoting the production of ethanol: farmers
and the government. The farmers are benefiting from this promotion because of the
incentive given to them to use corn to produce ethanol. This incentive comes in the form of
a government subsidy that ranges from $0.29 to $0.36 per liter of ethanol. So instead of
using the corn to feed people, this corn is converted into ethanol. The subsidy gives the
farmer an incentive to use even more land for ethanol production than for food and
protects their farm from cheaper ethanol products made internationally.
The other group that benefits from the production of ethanol is the government. The
government is participating in a strategic trade policy. The government wants to get a
first-mover advantage in the United States and abroad for its ethanol products. The
government did the same thing with Boeing by providing them subsidies which helped
them become one of the most recognized airplane companies.
1B) The tariffs placed on sugar cane benefit two groups: farmers and the government. The
farmers benefit from the tariffs because it makes growing corn for ethanol more attractive.
Couple the tariffs with the subsidies granted for producing ethanol, and you will have a
very happy farmer.
The other group that benefits from the tariffs is the government. The government is trying
to change its balance of trade with other countries by forcing farmers to reduce their
reliance on imported agricultural products. Their hope is to be able to have a net gain of
funds through the export of ethanol based products.
1C) All groups suffer from these policies to a certain degree. The consumers stand to lose
the most since both policies are creating a huge demand for corn. The increase in demand
for corn increases the price which will increase a lot of the food Americans eat. The
increase in price for corn will also cause meat product prices to soar as well. This is
because a lot of animals, especially cows, are fed corn as the main part of their diet.
The farmers lose from these policies as well. The subsidies given to these farmers entice
them to focus more on growing corn for ethanol instead of other options. These farmers
are putting their eggs in one basket, or all of their farm into one crop. This does not bode
well since they are not hedging their risk against the market. What if the government
