Question about Supply Side Economics/Trickle Down Economics/Horse and Sparrow theory

[wufwugy]

A change in demand affects price but not the other two. The other two can be affected if quantity demanded/supplied and output are in disequilibrium. Virtually all non-economist pundits misuse the these terms, typically by saying "demand" when they mean "quantity demanded." A change in demand is a shift of the curve; a change in quantity demanded is movement along the demand curve. A shift in one curve doesn't shift the other, but a shift in one curve does change the quantities demanded/supplied. The curves each shift for different reasons. If we're talking aggregate demand and aggregate supply (different curves than just demand/supply), then some things can shift both, like if there is an oil supply shock, both aggregate supply and aggregate demand curves will shift left (decline).

I'd like to add something to more closely address the point you were making.

When there is a change in quantity demanded, producers certainly try to meet it, which can result in a change in production. If it's an increase then it does mean that there is an increase in prosperity, roughly speaking. However, in the aggregate context, this does not mean that a redistribution from the rich to the poor will have that same effect. Nobody knows exactly what happens in that case. The idea that redistribution can increase aggregate demand assumes things not demonstrated. It assumes a market inefficiency that is solved by the redistribution and it assumes the fall in aggregate demand resulting from the detraction of consumption/investment from one area is more than offset by the proposed increase coming from those who were given money. It assumes even more too.

This idea is plausible, but in my estimation (and of lots of economists), it is bad economist-ing. The idea doesn't fall in line that well with economic principles and the empirical evidence is quite inconclusive. The idea's legitimacy among economists is due to derivation from functions that make up the GDP equation. The functions are arbitrary and not agreed upon by all economists. A big issue here is that the functions are wrong and economists can explain why, but none know how to create more rigorous and less controversial functions. This has resulted in some economists treating the functions as if they are correct enough to treat as virtual truth.

[wufwugy]

When there is a change in quantity demanded, producers certainly try to meet it, which can result in a change in production. If it's an increase then it does mean that there is an increase in prosperity, roughly speaking.

I forgot to add that this is only an increase in total production if it comes from something like an increase in wealth. Even if a poor person with a small savings account pulls out of that savings account to consume currently more than he typically does, it's not an increase in total production due to the detraction of saving and all that goes along with that. In some cases -- I think in most cases -- that would actually result in a decrease in total production.

[CoccoBill]

I forgot to add that this is only an increase in total production if it comes from something like an increase in wealth. Even if a poor person with a small savings account pulls out of that savings account to consume currently more than he typically does, it's not an increase in total production due to the detraction of saving and all that goes along with that. In some cases -- I think in most cases -- that would actually result in a decrease in total production.

Doesn't this depend entirely on what type of goods we're talking about? 1000 poor people probably use more toilet paper than 1 rich guy, but the 1 rich guy probably always buys more private jets. Coke and bitches might be a toss-up.

[wufwugy]

Doesn't this depend entirely on what type of goods we're talking about? 1000 poor people probably use more toilet paper than 1 rich guy, but the 1 rich guy probably always buys more private jets. Coke and bitches might be a toss-up.

If we assume the same amount is spent in each case, I don't know of any models economists have that would show a difference in effect on the economy. Though there WOULD be a difference, it's just a guess as to what the difference is. GDP equations treat a $1000 spent on toilet paper the same as $1000 spent on materials to help build a large water vessel.