The Demand for Ethanol

Paper Summary:

The paper looks at an article entitled "Going Crazy for Ethanol" by S. Pearlstein and explores economic issues associated with the supply and demand of a gasoline substitute, ethanol. The paper provides a synopsis of the article in relation to economic theory and explains why changes have occurred in the supply, demand and price of ethanol. The paper examines the invisible hand theory that is proposed to facilitate the equilibrium of price and demand. The paper concludes that understanding how economic conditions affect the marketplace provides managers with vital tools necessary for making effective business decisions.

Outline:
Abstract
Economic Issue
Economic Influences
Supply and Demand
The Invisible Hand Theory
Conclusion

From the Paper:

"Pearlstein, the author of the article, reports that the price for ethanol has reached an all time high of $2.90 per gallon which is twice as high as a year ago. With the manufacturing cost around $1.25 per gallon, the operating margin exceeds 50%. Ethanol is a colorless, volatile alcohol derived from the fermentation of grains and sugars or by the hydration of ethylene. Ethanol can serve as an environmentally friendly substitute for gasoline. Many oil companies are exploring options for production of ethanol to mix it with gasoline to reduce costs. Data indicate that adding ethanol to gasoline would reduce current prices at the pump by 30 cents per gallon (Donaldson, 2006 12)."

Sample of Sources Used:

• Baker, D.R. (2006). Oil Giant Chevron Gives Biofuel a Try / New Business UnitExplores Ethanol. The San Francisco Chronicle. Retrieved June 2, 2006 from theProQuest database.
• Colander, C.D. (2004). Economics : Economics and Economic Reasoning. Chapter 1, p.1-23, Ch 2, p. 1-29. The McGraw-Hill Companies, 5e.
• Donaldson, C. (2006, May 31). H-E-B to Add Ethanol Pumps. Austin AmericanStatesman. Retrieved June 2, 2006 from the ProQuest database.
• Pearlstein, S. (2006, May 24). Going Crazy for Ethanol. The Washington Post.Retrieved June 1, 2006 from the ProQuest database.
• (U.S. DOE) U.S. Department of Energy (2005). Regulation of Fuel and Fuel Additives: Standard for Reformulated Gasoline, Federal Register, 7716-7878.

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