3 ms·
It depends on the elasticity of the commodity. Going to one of those contrived economics examples: let's say you have 5 people who have the following amount av
by dibujante 11y ago
It depends on the elasticity of the commodity. Going to one of those contrived economics examples:
let's say you have 5 people who have the following amount available to spend on TVs:
$100
$80
$50
$30
$10
And you have 5 TVs to sell. What price do you sell them for?
If you price them at $100, you sell 1x$100 and make $100
If you price them at $80, you sell 2x$80 and make $160
If you price them at $50, you sell 3x$50 and make $150
At this point you see a trend - you should price your TVs at $80 and just eat the loss on the three TVs you don't sell.
So now we have a society in with 40% of people have a TV and 60% don't. As a government, you want 100% of people to have a TV, so you intervene to try to fix it.
First, you double everyone's income.
That doesn't change anything. The new price for TVs is $160 and two people get TVs.
So instead, you give everyone $50.
If you price them at $150, you sell 1x$150 and make $150
If you price them at $130, you sell 2x$130 and make $260
If you price them at $100, you sell 3x$100 and make $300
If you price them at $80, you sell 4x$80 and make $320
If you price them at $60, you sell 5x$60 and make $300
So now 80% of society gets a TV. Better! Sure, you haven't eliminated inequality, but you've reduced it.
But let's say it isn't TVs, it's houses. And you have three of them, not five.
Everyone needs a house. So you'll bid as much money as you have to to beat the next guy trying to get one.
So the first house will go for $80 to the person with $100.
The next house will go for $50 to the person with $80
The final house will go for $30 to the person with $50.
If you double everyone's income? Nothing changes. We've already seen that doubling people's income does nothing.
If you give everyone an extra $50? The distribution ends up the same, except everyone pays an extra $50 for each house.
TL;DR: inelastic goods like real estate will just go up in price. Elastic goods like electronics will, but less than the amount of the wealth transfer. The most important thing is to change the wealth ratio rather than the gross amount.