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Under What Conditions Would Ethanol be in Society’s Best Interest? PowerPoint PPT Presentation


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Under What Conditions Would Ethanol be in Society’s Best Interest?. Charles B. Moss, Troy G. Schmitz, and Andrew Schmitz. Welfare Effects with Government Programs. Welfare Impacts of a Shift in Corn Demand. Added Effects of Ethanol Measured in the Fuel Market.

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Under What Conditions Would Ethanol be in Society’s Best Interest?

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Under what conditions would ethanol be in society s best interest l.jpg

Under What Conditions Would Ethanol be in Society’s Best Interest?

Charles B. Moss, Troy G. Schmitz, and Andrew Schmitz


Welfare effects with government programs l.jpg

Welfare Effects with Government Programs


Welfare impacts of a shift in corn demand l.jpg

Welfare Impacts of a Shift in Corn Demand


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Added Effects of Ethanol Measured in the Fuel Market


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Summary of Welfare Costs and Benefits: U.S. Ethanol Production


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Comparisons


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Current Policy Scenario


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Simplified CGE Original Equilibrium


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Subsidizing Ethanol Production


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Equilibrium Changes

  • Original Equilibrium

  • Equilibrium After Ethanol Subsidy


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  • Effect of Subsidy on Price/Budget Line


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A Simplified CGE of Subsidizing Ethanol

  • Simplify the economy to four outputs

    • Agriculture/Food

    • Manufactured Goods

    • Energy

    • Ethanol

  • Ethanol will be assumed to be an imperfect substitute for energy


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  • Inputs

    • Capital

    • Labor

    • Energy (primary energy)

    • Materials

    • Land


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General Equilibrium

Capital

Labor

Energy

Materials

Land

Agriculture

Energy

Manufacture

Ethanol

Agriculture

Manufactured

Energy


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Production of Ethanol (Biofuels)

Capital

Labor

Energy

Materials

Ag. Output

Ethanol (Biofuels)

Energy

Ag. Biproduct


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CES Production and Utility Functions

  • Utility and Production Functions

  • Input and Output Demands


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Excess Demand Relationships

  • Excess Demand Functions

    • First determine the demand for outputs

    • Compute excess demands for inputs


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Solution

  • Objective Function

    • Income closure

    • Zero profit restriction

    • Price normalization


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Input/Output Relationships

  • Energy Demand

  • Agricultural Demand

  • Manufactured Goods


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Effect in Output Market


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Change in Input Prices


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