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May 27, 2007

Economic Idiots

Yes, this'll do it:

The problem is particularly acute for Languedoc wines, whose production far outstrips demand.

That's the problem motivating the wine terrorists.

CRAV called on the government to impose a minimum price system for wine,

That's the solution they offer.

Yes, that's right, they believe that the way to solve a problem of over-production is to guarantee a higher price for said production.

This would, in more normal circumstances, qualify them for the prestigious Economic Idiot Award. But they're French farmers, so that would be entirely redundant.

May 27, 2007 in Economics | Permalink


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Tim - I can't quite see what you are getting at. The farmers are not worried about over-production itself, they are worried about their incomes. With inelastic demand for wine, setting a minimum price is a good way to do exactly that. The average farmer's income goes up, even though quantity of unsold wine increases.

Tim adds: The demand for wine is price inelastic? When did that happen?

Posted by: bluematter.blogspot.com | May 27, 2007 11:33:39 AM

I suspect a long time ago, as is the case with most agricultural products. A careful look at the empirical academic literature on the subject will convince you (careful look because the area is fraught with methodological difficulties) Also note that I am talking about the price elasticity of demand for wine in general - not the price elasticity of demand for different wine brands. That's the reason why wine is covered by the EU Common Agricultural Policy - if demand was elastic there would be little point in that. (I can hear you saying there's little point in having the CAP anyways, and I agree, but again that's not from the private farmers' perspective)

I agree with you that, from a social point of view, what the farmers ask for is ridiculous. But from a private point of view, it makes sense.

Posted by: bluematter.blogspot.com | May 27, 2007 12:49:46 PM

Bluematter, I think you're making a basic mistake about the range of substitutes: if the price of wine goes up, some people will substitute beer, or juice.

Posted by: Marcin Tustin | May 30, 2007 2:11:46 PM