Henry Ford\'s Model T was originally designed and built be run on ethanol. Today

Question

Henry Ford's Model T was originally designed and built be run on ethanol. Today, ethanol (190-proof alcohol) can be produced with domestic still for about $0.75 per gallon, When blended with gasoline costing $3.00 per gallon, a 20% ethanol and 80% gasoline mixture cost $2.55 per gallon. Assume fuel consumption at 25 miles per gallon and engine performance in general are not adversely affected with this 20-80 blend (called E20). How much money can be saved for 13,000 miles of driving per year? How much gasoline per year is being conserved if one and a half million people use the E20 fuel?

Explanation / Answer

There are a few things wrong with this questions. First, gasoline is cheaper than ethanol. Second, gasoline is more efficient than ethanol. Third, making gas cheaper increases the consumption of gasoline. Demand curves are downward sloping. So, the real answer to part B is that we need a demand curve to figure that out. But I can interpret what the questioner is getting at. A. If one were to drive 13,000 miles with pure gasoline, that would cost: 13000*3/25=$1,560. If one were to drive the same distance with E20, that would cost: 13000*2.55/25=$1,326. The difference between these two figures is: 1560-1326=$234. This represents the savings. B. If the fuel is 100% gasoline, then driving driving 13,000 miles in a year will mean consuming: 13000/25=520 gallons of gasoline. However, if 20% of that is ethanol, then the gasoline conserved will be: 520*.20=104 gallons per person. Multiplying this number by one and a half million people: 104*1500000=156,000,000 gallons. If you could, please leave the source of the question in the comments.

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