Thursday, March 7, 2013

The Trouble with Quotas

The title of this blog is a take on the original Star Trek episode called the "Trouble with Tribbles", in which a small alien life form creates a significant problem for our intrepid space explorers.  The same can be said for the US governments ethanol quota, as elaborated in this NY Times article.  Here we see that by forcing the sale of corn to produce ethanol is leading to increases in the prices of livestock feed.  Corn producers want to keep the quota and livestock producers want the quota to be lifted.   Imposing ethanol quantity restrictions eliminates the ability of the market to move resources to where they are valued the most and leads to inefficiencies in the marketplace, which is exactly what we see in the quota model from class.

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