Vouchers in the hands of consumers gives them power in the market – and they are either happy with deals now or they having the voucher in their hand can simply wait for a better deal. If they are not being restricted to only some suppliers, consumers can enable those businesses offering the best deals to grow their business.

We already know what happened in solar water heating, so no one should be surprised by the problem that has arisen and it is not just supply and demand but a limited market (some are in the loop and some are not – consumers only access their saving via the business thus uncontrolled demand for the government largesse).

The same $3B could be used to give every household a $1500 voucher. This voucher used for insulation, heat pumps, double glazing or otherwise cashed in a Kiwi Saver account (making them compulsory at 2% from the full-time employee and employer).

The money would still be borrowed but within a year or so our housing stock would be upgraded (resulting in falling energy demand – reducing market rate power prices to business users). This faster installation would create more jobs and when we need them most, 2009 and 2010.

Whereas the current scheme has waste and distortion (only some are authorised etc) and is over too long a time frame.

Although Marty does state it can’t happen, he also stated:

“fewer people are taking up the opportunity than otherwise might”

In order to say that this is a bad thing. Now, when the counterfactual isn’t realistic this isn’t a fair claim.

Two things here:

1) The fact that the surplus is split between consumers and producers isn’t necessarily a bad thing – even in perfect competition the fact that the cost of insulating houses rises in the quantity is sufficient for this result to hold.

2) If the government sub-contracts to a monopolistic buyer the pricing issue will be the same. If the government gave the money to consumers instead of producers the pricing issue would be the same. And finally, if the government decided to make the stuff itself I highly doubt they would do so more efficiently.

I agree with you that the government complaining about the fact that some of the surplus accrued to firms is dumb. However, I don’t really agree that there are alternate structures that would have changed the allocation of the surplus – and if even if there was (like the government taking control of the industry) I don’t think they are preferable.

There is an increase in quantity demanded (Q1). The new price is P1, hence the affect of a subsidy

the point of the article is that P is still basically the current price after subsidy has been given to the producer instead of P1.

Toms explanation sounds reasonable

“If the producers are making monopoly profits, that’s a completely different argument. But even in perfect competition, the price would be unlikely to drop by the full magnitude of the subsidy.”

Basically you could say the same for the subsidy with doctors. Pe = $60, Govt. introduces $40 subsidy which increases quantity demanded for a $20 fee to the consumer. Doctors try to reduce this demand by charging $30, hence the producer (doctors) get actually $70 than the original $60.

s1 is the supply curve after subsidy. there is a shift in supply, in this case, an increase in supply due to the subsidy hence why i would argue about supply been inelastic.

No it doesn’t. There can be only one supply curve on the diagram, if there were two which one of them do you read the quantity supplied off, for a given price?

actually he has that right. A subsidy pushes the supply curve out.

No, the first graph is identical to the second in all necessary features he just gets the result he wants by measuring the amount subsidy incorrectly.

Tom is right. the first graph shows just the desired outcome, i.e. the affect of the subsidy

the subsidy in graph two should be from e down to where s1 meets q

If you have auxiliary goals, that’s fine. But that’s not what this post is about – it seems to be just complaining about how the price doesn’t drop by the same amount as the subsidy, as if that should be some sort of surprise, or is due to avarice on behalf of the insulation firms.

If the producers are making monopoly profits, that’s a completely different argument. But even in perfect competition, the price would be unlikely to drop by the full magnitude of the subsidy.

Of course if you want full incidence on the consumers and to maximise their utility, the best method is a cash handout…