The government may impose taxes on the purchase or sale of a product. The taxes get added to the buyer's cost, but not the seller's revenue. This has the effect of reducing both supply and demand, and also diverting both to alternatives that cost more to make, do the job less well, or both. This is done with sugar, and the business that sugar would get is diverted to corn syrup or other corn sweeteners. The IRS, corn farmers, and Archer Daniels Midland win. Sugar cane and sugar beet farmers, sugar refiners, everyone who likes sugar better than corn syrup, and anyone competing with corn syrup buyers for corn products, loses. Further losses are imposed by transaction costs.
President Obama's "Cap and Trade" scheme is another example of this. By greatly increasing the cost of combustion-generated electricity, he drives electrical utilities towards so-called "renewable" resources that either are far more expensive, far less reliable, have far greater impacts on local ecologies, or all of these.
In this series:
Supply, Demand, and Price | Price Caps | Price Supports | Restricting Supply | Excises | Subsidies
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