Plain Sense Economics

Gregory Mankiw wrote in The New York Times about how to capture the (underwhelming in numbers) economists’ vote. Take a look at the issues he presents and then see if you agree. Use simple demand and supply curves to describe the market and then draw your own conclusions.

Here’s an example: Mankiw argues that most economists would like to see the end of farm subsidies. As an example he points to government subsidies for domestic ethanol production, coupled with tariffs on foreign made ethanol. So – when there is a subsidy to farmers, which curve (demand or supply) shifts and in what direction? If you chose the supply curve shifting to the right, you’re correct. How does that affect the price of ethanol? It lowers the price. So far, so good. However, as we’ve learned in earlier discussions and in commentary in the media, this has a pretty major impact on the market for corn. Which curve is affected in that market? The demand curve. What happens to the price of corn? It rises. And we can follow that trail to its burdensome conclusion. Oh, and as taxpayers we support these subsidies – at a pretty substantial opportunity cost.

So – try some of the other issues and see what you think.