Acton Institute Powerblog

The great economic problem

Share this article:
Join the Discussion:

Note: This is post #17 in a weekly video series on basic microeconomics.

How does the price of oil affect the price of candy bars? When the price of oil increases, it is of course more expensive to transport goods, like candy bars. But there are other, more subtle ways these two markets are connected says economist Alex Tabarrok.

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: How markets link the world

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

Comments

  • “When the price of oil increases, it is of course more expensive to transport goods, like candy bars. ”

    That’s bad economics. Assuming only two commodities in the economy, a rise in the price of oil, hence gasoline, the price of candy bars must fall. The only way both could rise is if the money supply grows, in which case other things wouldn’t be equal.

    A litmus test for good economists is understanding the impact of invariable money as the great George Reisman used to say. With a fixed stock of money, one product can increase in price only if another, or others, fall because the some of all transactions must add up to the fix stock of money. So if you see a general increase in prices as happens with a CPI increase, then you know the cause is a growing money supply.

    In addition, the myth that rising oil prices cause a general rise in prices is a good example of the post hoc fallacy.