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Production Economic Theory

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Recently there has been a drive to increase the production of alternative fuels from corn. The argument used by many is energy self-sufficiency. In light of the desire to reduce our use of foreign produced oil, many have suggested we should subsidize this production and shift to alternative fuels. Is this a good or bad idea from and economic view? If you say "Yes" or "No", why, explain your answer using sound economic theory.

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My answer is no. Shifting to alternative fuels is recommended but subsidizing this production is not acceptable from economic theory. Energy self-sufficiency is good but not when it is achieved through paying subsidies. The Energy Policy Act of 2005 requires that billions of gallons of ethanol be blended into vehicle fuel each year guaranteeing demand but the US corn ethanol subsidies have reached $6 billion according to 2015 budget estimates. The producers get federal subsidy, federal crop ...

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This solution explains production economic theory. The sources used are also included in the solution.

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