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Ft_bstrd
| | Posted on Wednesday, August 31, 2011 - 07:15 pm: | 
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Let's go back to the charts. Man I wish people were actually still taught this stuff in school. 
A subsidy is an artificial increase in profit created to create an incentive to produce a good or service. The government feels a particular good is in short supply and wishes to increase it's production. Producers who are not producing this good or service stop producing one product in order to produce the subsidized product containing a higher profit (subsidy).
Growers of soybeans switch to corn. Growers of rice switch to corn. Growers of wheat switch to corn. This means that corn is grown in surplus. This also means that rice, wheat, and soybeans are now grown in shortage.
The same thing happened with the housing market except the subsidy was on the demand side vs. the supply side. This is the favored governmental policy of progressives, Keynesian economics. |
Blake
| | Posted on Thursday, September 01, 2011 - 03:07 pm: |
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That chart seems backwards; it shows the surplus price is higher than the shortage price. |
Ft_bstrd
| | Posted on Thursday, September 01, 2011 - 06:15 pm: |
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No, it's correct.
Think of the price from the supply side not the demand side.
If you produce a product that would normally only pay you $1 each and I am willing to pay you $2 each, would you produce more or less of that product?
Surplus price = Surplus quantity.
At the higher quantity produced, demand is less and supply is greater. This creates a gap between the number produced and those able to meet demand at that price (see arrow marked surplus).
The graph doesn't completely demonstrate what's going on. In the case of corn for ethanol, 100% of the corn produced is used. There is no surplus of corn.
The subsidies, though, have moved production away from other food products (wheat, rice, soybeans) to more profitable, subsidized corn. The ethanol puts food into gas tanks instead of into bellies. The grain output is the same in total, but the grain available for food consumption is reduced.
Yet another case of the law of unintended consequences. |
Hootowl
| | Posted on Thursday, September 01, 2011 - 06:19 pm: |
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"Yet another case of the law of unintended consequences."
And yet 100% predictable. It's too bad our 'leaders' don't understand economics. |
Blake
| | Posted on Thursday, September 01, 2011 - 06:42 pm: |
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Sorry Jeremy, it just doesn't make any sense to me. If supply drops and demand rises, the price increases, no? Surpluses (more supply than demand) cause prices to fall, yes? The converse is true when demand surpasses the supply, prices rise, no?
Price from the side of supply? What's the difference? Or are you meaning "cost", the amount required to produce the goods before adding in profit?
I want to understand, but just don't see it.
>>> If you produce a product that would normally only pay you $1 each and I am willing to pay you $2 each, would you produce more or less of that product?
Why would you be willing to pay $2 when the price is $1? I don't follow. I guess I'd try to produce as much as I can sell, no more. Is that more or less, I don't know. How many you want?  |
Blake
| | Posted on Thursday, September 01, 2011 - 06:45 pm: |
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I may see it. You are using price as the variable forcing function. I'm thinking of supply as the variable forcing function. |
Ft_bstrd
| | Posted on Thursday, September 01, 2011 - 07:33 pm: |
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Blake, you are absolutely right that in a "perfect" market, equilibrium is the price at which 100% of the goods produced are sold. There are no unsold products and there are no buyers looking for products that are unavailable.
Subsidies are price manipulation (creates surplus). Price controls and Section 8 housing is another form of price manipulation (creates shortage).
Subsidies introduce extra pricing incentives for SUPPLIERS of product. The market price is the same (equilibrium price) but the income suppliers receive exceeds the market price. When this happens, suppliers NOT currently producing the subsidized product enter the market to take advantage of the subsidized pricing and enhanced profit.
If corn and soybeans are both $10/bushel, there is no benefit to produce one over the other. If the price of corn is subsidized so that the new price paid to suppliers is $15/bushel, soybean producers will stop producing soybeans and grow corn in order to gain the additional $5/bushel. |
Blake
| | Posted on Friday, September 02, 2011 - 11:49 am: |
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I'd modify that as follows:
If corn and soybeans both yield an equivalent profit related to capital investment and labor required to produce them, and if the demand/market for each is the same, then there is no benefit to produce one over the other.
The chart explained in depth...
http://www.netmba.com/econ/micro/supply-demand/
Not like engineering. |
Aesquire
| | Posted on Monday, September 05, 2011 - 01:39 pm: |
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In engineering if the bridge breaks, the guy building it screwed up.
In economics if the economy breaks the guy screwing it up gets a building.
The term "unexpected" is the news buzzword for when economists are wrong, and reality differs from idealism. it's a sub set of "diminish expectations" where repeated "experts" now claim that unemployment will remain bad for a decade.
Or at least until after this admin is gone.
Sorry, got a bit partisan there. I'm waiting for the Prez to announce his new job program after his vacation. In Martha's Vineyard.
Like last year when he promised a new jobs speech after his vacation in Martha's Vineyard.
And... Tuesday a Congressional committee meets to determine if I'm working this winter. |
Cityxslicker
| | Posted on Monday, September 05, 2011 - 07:29 pm: |
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supply side driven markets are voodoo !
they did used to teach economics in highschool..... pity it was all like this.
http://youtu.be/dxPVyieptwA |
Ft_bstrd
| | Posted on Monday, September 05, 2011 - 08:42 pm: |
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I LOVED economics! Couldn't get enough. |
Aesquire
| | Posted on Saturday, September 17, 2011 - 08:35 pm: |
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http://www.nationalreview.com/articles/277249/you- can-t-tax-rich-thomas-sowell |
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