It\'s estimated the peak of oil production will peak in 2035, and gradually decl

Question

It's estimated the peak of oil production will peak in 2035, and gradually decline causing an increase in gasoline prices. To help reduce the dependence on imported oil and avoid large fuel price increases the U.S. government created incentives for ethanol production. However, the current price of ethanol is relatively high making it less competitive in the fuel market.

What is an example of an implementation that protects residential customers from large fuel price increases? (Subsides/Incentive)

What would result to the supply and demand of ethanol and gasoline?

Explanation / Answer

When there is a rise in import of oil country loses a lot of its foreign reserve and becomes largely indebted due to high imports .Too much imports will also disturb the BOP which reduces trade welfare for the countries . Too focus more on domestic production country needs to incentive production of ethanol but if the prices are high , people would still prefer to use imported oil .Thus , government needs to subsidise on ethanol so that more oil is produced domestically along with tariff barriers on oil imports too . If the prices continue to rise for gasoline people would shift to ethanol i.e. domestically produced oil only if government wants to incentivise domestic oil production .

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