Chapter 27, Problem 1DQ

To determine

Whether Congress cares about protecting the environment and reducing our reliance on foreign crude oil, then the reason for which there is a large import tariff on ethanol.

Explanation of Solution

• On one hand, Congress and the federal law have mandated ethanol as alternative bio-fuels. The argument for such a move is that it helps to protect the environment, reduce depletion of resources, decrease the import of oil, and avoid waste of resources.

• However, none of the arguments is valid. On the other hand, it has imposed import tariffs on the ethanol supplied from Brazil. The two moves are quite contradictory to each other.

The reasons why there is a large import tariff on ethanol are as follows:

• Since, the advent of the Federal law about the compulsion of adding ethanol to gasoline and hefty subsidy, there has been a boom in ethanol production.

• This means that most of the people engaged in the production of ethanol like corn and sugar farmers and the lobby group who controlled the market of ethanol compelled the government to take such decisions.

• This is because the decision has political consequences in the form of a vote. The large import tariff ensures that the prices of ethanol in the market remains high and will benefit the people associated with its production.

Economics Concept Introduction

Concept introduction:

Import tariff:

Import tariff is a type of indirect tax imposed on the goods imported in one country from another country. Import tariff increases the price of the good in the domestic country and hence, protect domestic producers from competing with outside producers.