Friday, June 6, 2014

The Beer Store Propaganda

One of the first lessons economics students learn in their first economics course is that supply and demand affect price. An increase in supply reduces the price of a good because there is more of the good available, and the only way all of it can be sold is if the new supply is offered at a lower price. In fact, you don't need an economics degree to understand this relationship. If you ever tried to sell anything, you know that the first question you want to answer is: how much are others asking for the same product? You want to know this because you know that the best way to sell your product is to ask a little bit less than the competition. If you understand this, it will not be hard to see the fallacy in the picture below.

The add claims that allowing grocery stores to sell beer would increase the price of beer. But, we know that new suppliers must compete with the existing suppliers by lowering prices, not by raising them. So, if anything, allowing grocery stores to sell beer would lower beer prices. This, in fact, is the reason The Beer Store wants to prohibit grocery stores to sell beer. New suppliers would lower the price of beer and thus lower the monopoly profits of the current supplier, the Beer Store. This is ECON 101 at its simplest, dear friends.

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