Do you think the price of E85 gas is dependent on the price of regular unleaded gasoline?

Question

theoretically, the prices should be independent of each other since one is mostly from corn. But it seems E85 is always about 50 cents less a gallon all the time.

Answer 1

E85 is still 15% gasoline so, if left totally to the market conditions, when gasoline goes up E85 should go up, and vice versa.  However, if it were simply due to the market condition, it wouldn't just 'shadow' the price of gasoline by a fixed amount (50 cents in your case).

But since ethanol is highly subsidized by the government (it would cost more than gasoline otherwise), other forces are at work.  The difference is probably going into someone's pocket.

Answer 2

Yes, since it is made with mostly regular gasoline. There are taxpayer-based subsidies which make it cheaper than it should be so that we might use it more.

Answer 3

The reason that it follows is that it is connected by the hip economically. People are less willing to buy E85 due to it's lower energy content per gallon. As the price of Gasoline increases, the demand for E85 would increase if it's price stayed the same. Since there is a limited supply of E85, the price will be raised until the demand stabilizes with fixed supply. It just so happens to be the current turning point for buyers is the price that you see.

If E85's price was set fixed for whatever reason, the supply would run out if the price of gasoline increased. More people would want to buy the E85 than could be supplied at that price.

Answer 4

Absolutely.  Economics 101: "Charge what the market will bear", not the cost of making the thing.  If it costs you 3 cents a gallon to make a gasoline alternative, you'll charge $3.91 a gallon because you >>CAN<<.

But you wouldn't charge $6.49 a gallon, no one would pay it.



If it costs more to make than you can charge, then don't make it.

That's how Big Oil has killed alternative fuels in the past; let them build up then drop the price of oil below the cost of making it.  Laugh and cry:

http://www.washingtonpost.com/wp-srv/opi...

Answer 5

Yes they will. This is partly because of tax subsidies and bilectial curves in the modern day stock market.

Best Answer me BOI!