Problem:
Brazilian ethanol producers (who make ethanol from sugarcane) have lower production costs than U.S. producers. Indeed, even though it costs 16 cents per gallon to transport ethanol from Brazil to the United States, which also imposes and import tariff of nearly 60 cents per gallon on Brazilian ethanol, the United States still imports about 60 million gallons of ethanol per year from Brazil. If congress really cares about protecting the environment and reducing our reliance on foreign crude oil, why do you suppose we have a large import tariff on ethanol?
Question 1: If imports of Brazilian ethanol begin to rise sharply in the future, what do you predict will happen to the size of the import tariff levied on this good?
Question 2: Why do you suppose it is owners of fertile farmland who are given special treatment by the federal government, rather than, say, automobile mechanics?
Question 3: Use the theory of rational ignorance to explain why the ethanol subsidy is only 51 cents per gallon rather than, say, $5 per gallon.