4 ms·

1) That's half-true. Or 60% or 40% true. Econ 101 says some % comes out of profits, some % comes out as higher prices. 2) Externalities. Also Econ 101. W

by jbooth 11y ago

1) That's half-true. Or 60% or 40% true. Econ 101 says some % comes out of profits, some % comes out as higher prices. 2) Externalities. Also Econ 101. We've got a basket of reasons, from environmentalism to national security, to limit our dependence on oil. Kicking in taxes while the prices are low can prevent markets from forgetting all the things they started to build in during $120/barrel oil, continuing to limit our future dependence, with the bonus that we now have a relief valve we can ease up on if things get really tough with oil prices. It's actually the most market-based way to attack the myriad problems the oil economy creates for us.

randyrand 11y ago
In a perfectly competitive market corporate profits are zero and it all comes out of the consumer. Now oil is not perfectly competitive and you are right. But it is rather close. So you can still expect the majority to come from the consumer.
- gohrt 11y ago
  If oil is close to perfectly competitive, how does OPEC control prices by adjusting supply?
- morgante 11y ago
  > In a perfectly competitive market corporate profits are zero and it all comes out of the consumer. No, the determinant of tax incidence is price elasticity, which is orthogonal to competitiveness of a market. [1] Oil is interesting because it is somewhat price inelastic both for demand and supply. People's ability to stop driving is limited in the medium term, but also many suppliers of oil aren't capable of completely exiting the oil business. In practice, I suspect the incidence is in fact roughly 50/50 if applied in a huge country like the United States (the incidence would be much on consumers in smaller markets). [1] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence
  - jessriedel 11y ago
    No, you're missing the part where corporate profits are zero in a perfectly competitive market. https://en.wikipedia.org/wiki/Perfect_competition#Profit https://en.wikipedia.org/wiki/Perfect_competition#Profit If corporations always operate at revenues=expenditures, then the entire tax must fall on the buyer in the long run. The price inelasticities you're talking about are only in the short run.
    - morgante 11y ago
      > you're missing the part where corporate profits are zero in a perfectly competitive market. I'm well aware of what defines a perfectly competitive market. > If corporations always operate at revenues=expenditure That's not what zero economic profit means. Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply.
      - jessriedel 11y ago
        > I'm well aware of what defines a perfectly competitive market. Then you should have addressed that point in your first reply to randyrand. It was the entire point of his comment. > That's not what zero economic profit means. If you're just talking about the difference between economic profit and accounting profit, I'm well aware of the difference. My point stands. > Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply. Not in the long, as I qualified. In the long run, the only thing owners of capital bring to the table is pure capital itself, and they will simply redistribute capital to the next most profitable venture, which in a large economy is essentially identical.
waterlesscloud 11y ago
Of course, the whole reason for our dependence on oil is that there's a much larger basket of externalities that count as benefits. Those are harmed by higher oil prices.

by jbooth 11y ago

randyrand 11y ago

In a perfectly competitive market corporate profits are zero and it all comes out of the consumer. Now oil is not perfectly competitive and you are right. But it is rather close. So you can still expect the majority to come from the consumer.

gohrt 11y ago
If oil is close to perfectly competitive, how does OPEC control prices by adjusting supply?
morgante 11y ago
> In a perfectly competitive market corporate profits are zero and it all comes out of the consumer. No, the determinant of tax incidence is price elasticity, which is orthogonal to competitiveness of a market. [1] Oil is interesting because it is somewhat price inelastic both for demand and supply. People's ability to stop driving is limited in the medium term, but also many suppliers of oil aren't capable of completely exiting the oil business. In practice, I suspect the incidence is in fact roughly 50/50 if applied in a huge country like the United States (the incidence would be much on consumers in smaller markets). [1] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence
- jessriedel 11y ago
  No, you're missing the part where corporate profits are zero in a perfectly competitive market. https://en.wikipedia.org/wiki/Perfect_competition#Profit https://en.wikipedia.org/wiki/Perfect_competition#Profit If corporations always operate at revenues=expenditures, then the entire tax must fall on the buyer in the long run. The price inelasticities you're talking about are only in the short run.
  - morgante 11y ago
    > you're missing the part where corporate profits are zero in a perfectly competitive market. I'm well aware of what defines a perfectly competitive market. > If corporations always operate at revenues=expenditure That's not what zero economic profit means. Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply.
    - jessriedel 11y ago
      > I'm well aware of what defines a perfectly competitive market. Then you should have addressed that point in your first reply to randyrand. It was the entire point of his comment. > That's not what zero economic profit means. If you're just talking about the difference between economic profit and accounting profit, I'm well aware of the difference. My point stands. > Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply. Not in the long, as I qualified. In the long run, the only thing owners of capital bring to the table is pure capital itself, and they will simply redistribute capital to the next most profitable venture, which in a large economy is essentially identical.

waterlesscloud 11y ago

Of course, the whole reason for our dependence on oil is that there's a much larger basket of externalities that count as benefits. Those are harmed by higher oil prices.