Talk:Flypaper theory (economics)
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[edit] Example
"As another example, suppose a tax is levied on the sellers of a product. The sellers may simply raise the price of the product, thus shifting the burden of the tax on the buyers of the product." This is simply poorly thought-out economics. The seller, especially when under competition, cannot simply set his own prices and expect to profit. Prices are more or less set by Supply-Demand equilibrium ([here][1]), and cannot be altered (much) by the seller without damaging his profits. The price is set to the point at which the quantity demanded equals the quantity supplied. If he puts the price over that equilibrium, he can expect a loss in profits and a surplus.
What decides who is hurt by a tax and how much is the elasticity of the good. The burden undertaken by either party is virtually beyond their control, so long as they are in the market for that good. - NY3 5:15 EST Sept 28, 2005
- It is true that no individual seller could set his own prices, but the idea is that the tax would cause sellers en masse to shift some of the burden of that tax onto buyers. The example applies because it's not just a single seller moving, but many. —Lowellian (reply) 17:58, 7 April 2008 (UTC)
[edit] Grants
Actually, the flypaper effect is usually used to describe the idea that grants to state and local government "stick where they hit." For example, does a federal grant to a state for education increase education spending by the amount of the grant or does it "crowd out" previous state spending on education. Flypaper effect was coined by Arthur Okun and tends to be percieved with skepticism by most economists. -- J.C. 10/20/2006
