Amicus asks: If buying stuff you want or need cheaper is what it's all about and that seems to be the argument here, then why are there any brands left on our supermarket shelves besides "home brands"?

Because people have preferences on matters other than price. That doesn't contradict the fact that they also have preferences on price. And as long as they have price preferences (with or without other preferences), they can be influenced by price signals.

Price signals, by the way, are the least intrusive method of influencing behaviour -- the method you pick if you don't like Big Government, the Nanny State, and all that.

Atman wrote: "Your assumption that people buy on price alone is wrong."

Nowhere do I assume that they buy on price *alone*. I merely assume that they are influenced by price (among other things).

Neither am I necessarily defending everything the author (Andrew Leigh) says. I am merely attacking certain fallacious arguments offered by others -- e.g.:

"If you like Tim Tams and the Govt subsidises the price..."

Grrrr.... In the compensation package, the government isn't subsidizing PRICES of carbon-intensive products. It's subsidizing the INCOME out of which those products AND OTHERS are purchased. The price is product-specific but the compensation isn't. So the compensation doesn't negate the price signal.

If the government raises prices of apples and provides compensation which can be spent on apples or oranges or anything else, not everyone will spend it all on apples.

I think people are wrongly assuming that just because consumers are being compensated that they won't try and save money by switching to cheaper options or by reducing consumption.

If I'm getting an extra $10 a week in my pocket, I don't automatically stop looking for ways to save money. I assume most Australians would be inclined to do the same. So instead of getting an extra $10 a week, reduce consumption, switch to greener products which will start to be more price competitive, and maybe have an extra $20 a week in the pocket for savings.

The reason for the compensation package is two-fold. Firstly, the greener options won't be immediately available when the tax is introduced, so it provides a buffer for end consumers while industry innovates. Secondly, to allay the fears of change being drilled into the public by the Murdoch press and the Coalition, therefore preventing a massive voter backlash.

In February the price of bananas rose from about $6 a kilo to about $15. I stopped buying bananas. In April I got a pay rise that increased my weekly income by more than enough to buy the quantity of bananas I used to. But I still don’t buy bananas. Why? Even though I could afford bananas, I don’t like them three times as much as apples, pears, mandarins and all the other cheaper alternatives.

It’s the same with a price on carbon. Some people will take extra care to turn the lights off, buy a smaller car or TV, insulate the roof, turn appliances off rather than leaving them on standby, take public transport, or take other action so they can spend less on energy and more on other things.

Andrew’s economic analysis is entirely correct, a carbon price will lower energy consumption compared to what it would be otherwise.

It’s a bit disappointing, though, that he has limited his attack on carbon price detractors to the most economically illiterate and easily refutable end of the opinion spectrum (though the comments here show there are some who still don’t get it – well done grputland for a good effort at spelling out the economics in simple terms).

Far more interesting and important are questions about whether the price is at the right level, whether the right industries were compensated or exempt, how to adjust the price over time, what will happen to export competitiveness, how we integrate with the rest of the world ...

Andrew has rebuffed one easily refutable argument against the carbon tax. I look forward to his responses to the tougher ones.

I would like to see the rationalé of first charging & then giving back ? Where in this is the economic sense or other benefit ?

One of the most persistent of myths in the present condition of Man is that politicians are worth the wealth they waste. They aren’t.

Take Mr. Andrew Leigh. Wouldn’t he be well advised to acquaint himself with some facts of Life? I mean Life of any and all living beings.

He needs to learn that every living cell, tissue or organism embodies three elements; Carbon, Hydrogen and Oxygen, which by the energy of light give us that marvel we call Life.

The girl that goes to the dancing school will expend energy to go there and mental energy to learn and Energy to perform her exercises and this energy comes from the oxidizing of Carbon.

To all thinking people, Mr. Lee, Carbon is indeed the only product we trade in.

Let us beware of this fact if we want to keep ourseves on the ground
and not uner it.