Quote:
Originally posted by Mmmm, Burger (C.J.)
But that's you're problem. What you're positing isn't reality, it's the Soviet Union, where a level of supply is determined and adhered to regardless. You are correct that if supply is fixed at x barrels per day of gasoline, the sole determinant of price is where the demand curve crosses the fixed supply curve, and that the tax will simply raise consumer prices the amount of the tax. But the supply curve is not vertical, because oil companies can sell reserve gasoline and cut back production, especially in the short term. If their wholesale prices increase 20c, then imports would come in, terminals would be drawn down, and production might temporarily be increased (believe it or not a refinery can run above 100% capacity for short periods). That will cause prices to fall somewhat, meaning the equilibrium is somewhere below the full amount of the tax.
|
You said before that his economics are faulty, but now it sounds like you're taking issue with his facts, not his analysis.*
The supply curve might be vertical after a certain point -- i.e., producers need not operate to capacity, but once they do then prices go up until consumers are unwilling to pay. Also, it might well be the case that bringing gasoline in from foreign refiners is sufficiently constrained (by lack of tankers, e.g.) that it just doesn't have much effect. This is plausible to me, in that I thought what was driving high oil prices, more than anything else, was Chinese demand. At any rate, I don't know much about how this market works.
* If he oversimplified things in a brief blog post, I wouldn't be astonished.
