News Release: Iowa Farmer Discovers Highly Efficient Way to Convert Corn into Gasoline Ricardo Economackie, an Estherville, Iowa farmer, shook up the world financial markets Friday by announcing his discovery of a highly efficient four-step process for converting corn into gasoline. Economackie convincingly demonstrated that the new "technology" is much less expensive than an existing process through which corn is decomposed into ethanol gas that is then blended with conventional gasoline. Nearly all economists who have looked carefully at the process back up the innovator’s assertion. "There not only is clear evidence that this method works," said economist Stan Brue, "but also that it is highly cost-effective. The process is deceptively simple and can be applied to other product conversions, such as wheat to steel or soybeans to leather." At the news conference, Economackie disclosed the four main elements of the corn-to-gasoline conversion process: Highly efficient American farmers grow corn. U.S. firms export some of the corn to nations that are highly efficient at producing crude oil. U.S. firms import crude oil from abroad. The U.S. firms refine the imported crude oil into gasoline. Corn to gasoline! If world trade did not exist, its inventor would surely win the world’s highest honors for discovering it.

Photograph courtesy of: (c)Corbis # BAG0037;

6.2 Exchange rates button

She’s got a ticket to ride. --John Lennon, Paul McCartney Have you ever attended a county or state fair and spent time on the midway? If so, you are aware of the dual "currencies" used there. One currency is the dollar; the other is the ride ticket. Rides are priced in number of ride tickets, but dollars are needed to buy tickets at the kiosks. Alternative rides require different numbers of tickets. For example, the roller coaster may require 8 tickets, the twister, 6 tickets, and the merry-go-round, 2 tickets. Exchange rates between dollars and other currencies are analogous to the exchange rate between dollars and ride tickets.(1) Such tickets are a "currency" used to buy rides, and dollars and tickets are exchanged. Initially suppose that the dollar price of each ticket is $.25. If you were to exchange tickets for dollars on the midway, you would find that the ticket price of a dollar is 4; that is, 4 tickets will exchange for $1. The ticket-dollar exchange rate is 1 ticket = $.25 and the dollar-ticket exchange rate is $1 = 4 tickets. Although the rides are priced in tickets, not dollars, the exchange rate permits quick conversion of ticket prices into dollars. For example, the 8-ticket price of the roller coaster ride converts to $2 (= 8 tickets x $.25). Exchange rates enable buyers to convert goods priced in another currency to prices in their own currency. Next, suppose that in some year the fair increases the price of ride tickets from $.25 to $.50. The dollar has depreciated in value, because more dollars (one-half rather than one-fourth) are needed to buy each ticket. Ride tickets have appreciated in value, because fewer tickets (two rather than four) are needed to obtain a dollar. Specifically, the exchange rate has changed from 1 ticket = $.25 to 1 ticket = $.50, or alternatively from $1 = 4 tickets to $1 = 2 tickets. If the fair charges the same number of tickets per ride as before, the dollar price of the roller coaster ride increases from $2 (= 8 tickets x $.25) to $4 (8 tickets x $.50). Other things equal, depreciation of the dollar relative to another currency increases the dollar price of goods and services that are priced in the other currency. One difference, however, is that many exchange rates are free to fluctuate depending on currency supply and demand. The fair operators fix the dollar-ride ticket exchange rate. Another difference is that the fair operators offer an unlimited quantity of tickets at that price.

Photograph courtesy of: (c)Corbis # APE0011; Attribution - TICKET TO RIDE By: John Lennon and Paul McCartney. Copyright © 1965 Sony/ATV Songs LLC (Renewed). All rights administered by Sony/ATV Music Publishing, 8 Music Square West, Nashville, TN 37203. All Rights Reserved. Used by Permission.