Source: David Friedman’s Substack
by David Friedman
“Someone argues that, to get more and better medical drugs, we should reduce the unnecessarily high cost of getting new drugs approved. A listener disagrees on the grounds that the companies currently make enough money to afford to fund to research more drugs if they wanted to. A critic of a negative income tax proposal argues that the effect will be to make poor people less willing to work. A defender of the plan responds that even with what the negative income tax will pay them there will still be things that poor people want and need additional income to buy. In both cases the response interprets the argument as based on an income effect. In both the response is irrelevant if the argument is actually about a substitution effect.” (10/20/24)
https://daviddfriedman.substack.com/p/confusing-income-effects-and-substitution