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If the price increase weren’t due to a subsidy, that would be true. Instead, a subsidy creates a sustained shortage. Unless something else (not price action) i
by hammock 4y ago
If the price increase weren’t due to a subsidy, that would be true. Instead, a subsidy creates a sustained shortage.
Unless something else (not price action) increases the demand for mustard, its price will not move back to equilibrium. This concept is in Econ 101 (albeit one of the less intuitive concepts taught)
- Dylan16807 4y agoWell first off they didn't say the price will move back, they said the shortage will end. Now that it costs more, more supply can be obtained. But also it's likely that when the equilibrium point moved, farmers (or other parts of the supply chain) overshot it. That puts us in a price spike, so even if the new normal is higher than the old normal, if you check during a spike you should expect the price to go down.
- GekkePrutser 4y agoI'm the OP and yes you explained what I meant to say very well. All foodstuff prices are going up now anyway. And tbh, mustard is like 0.1% of my food budget so if it goes up a bit or even triples in price I won't think twice about it. I just meant that this will force a new equilibrium, subsidy or not, people will keep growing mustard. And of course tackling climate change is also a big priority, and renewable fuels are a good option for things that can't be electric (e.g. planes).