The Oil Drum EU: How to Address Contrarian Arguments – part III

On this third installment of the Contrarian Arguments series we’ll address the “Markets Will Solve It” claims.

A regular economist will tell you a fable like this:

If a shortage of potatoes occurs either by lack of supply or by growth on demand the market price will rise. This new higher price will signal to the farmers a need to produce more. Supply will rise, meeting demand, lowering the price and bringing the market back into balance.

Let’s see what’s wrong with this apparently correct logic.

Much more after the jump to The Oil Drum: Europe.