Sunday, April 01, 2012

Argumentum ad confusion #337

Statement: "Energy crisis? What crisis? Solving it by reducing subsidy? LOL"

Why it is a fallacy: 1) We're talking about entering an expected energy crisis given the current pattern of consumption, 2) Which means the energy at stake, non-renewable, is in decreasing stock, 3) A decreasing supply, given demand, should be reflected in a higher price, 4) But forcing the price so as not to move up, kills the function of the price as a messenger that otherwise tells us that the stock is vanishing; putting a subsidy on top of it kills it even more - consumers would think the stock is actually abundant, hence consumption may even increase 5) This is not just about one market, namely the particular energy at stake, but also about another market: the alternative energy, 6) Letting the price functions well in the market for the non-renewable energy, results in a price increase in that market, induces an increase in the demand for the alternative energy, and creates an incentive for firms to supply in response to the expected increase in the demand.

Conclusion: He who ridicules with that statement is either lying, just teasing,  or simply does not get the basic logic of supply and demand.

No comments:

Post a Comment