Re: [tlug] Yes! Another argument about the GPL!

["Stephen J. Turnbull" <stephen@example.com>]

Raedwolf Summoner writes:

 > When I was in university, my economics prof strongly stressed that
 > cost does not affect price. I.e., for the most profitable price, if
 > VAT is collected, the business would have to lower their price by
 > the amount of the VAT to achieve maximum profit.

In general, imposition of the VAT changes the most profitable price.
Price will remain constant only if it's been nailed to the wall
(technically, when demand is perfectly elastic).

 > Only the supply/demand curve determines price[1]

True, but you're paribusing some cetera that shouldn't be.  The easiest
way to analyze this problem with sufficient generality is to look at
the (inverse) demand P = f(Q) and (inverse) supply P = g(Q), where we
assume zero tax in these formulae.[1]  The problem without tax is then

    solve for Q: f(Q) - g(Q) = 0        (call the answer Q*)

and with tax is

    solve for Q: f(Q) - g(Q) = t(Q)     (call the answer Q**)

For an excise tax t(Q) is a constant, for a sales tax t(Q) is
proportional to g(Q), for the U.S. Social Security payroll tax t(Q) is
0.065*(f(Q) + g(Q))[2], and for VAT t(Q) is rather more complex
(depending on things we haven't measured here), but still a function
of Q.  If t is not zero, then Q* != Q**, and one or both of f(Q*) !=
f(Q**) and g(Q*) != g(Q**) must hold.

This formulation is the source of the terminology "a tax drives a
*wedge* between the supply price and the demand price".

 > Tangentially to this, we have been traditionally taught in school
 > that "money is a medium of exchange", but F.A. Hayek has
 > contributed the much more interesting observation that money is a
 > medium of information.

Again, this is somewhat inaccurate.  Money, though it talks, is hardly
informative.[3]  It is *price* that is an amazingly useful statistic.

 > And I do wonder how much expertise the programmers have in
 > economics, for example.

Some of us aren't programmers, really. ;-)


Footnotes: 
[1]  The inverse demand (resp. supply) function gives the answer to
the question "Given a quantity Q, what price induces the consumer
(resp. producer) to buy (resp. sell) exactly Q units?"

[2]  Well, it was the last time I had to deal with it.

[3]  Closely resembling 11-year-old girls, I've discovered.