More on those “Price Gougers”

Economic Ignorami by Rand Simberg

Every time we have a natural disaster like this, this idiotic topic comes up, and we once again have to explain Econ 101 to the products of our public school system, probably in futility.
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You know, I think that this is an explanation for socialism and collectivism’s continuing grip on the public mind, despite its long history of unending failure. There’s just something in human psychology to which it naturally appeals, and rationality just can’t break through. It just “feels” unfair for prices to go up in an emergency, regardless of the demonstrably bad consequences of attempting to legislate them.

Three Cheers for “Price Gougers” By Rand Simberg

In any locality, when the supply of a particular item is reduced with no change in demand, or the demand for it increased with no change in supply, or supply is decreased with a demand increase, prices will go up.

This is a signal to the market. To those demanding the product, it is a signal that the supply is relatively short, and that they should perhaps rethink the level of their demand, if possible. To the suppliers, it is a signal that more of the resources must be brought to market. In both cases, it will result in a change in behavior on both parties that will restore the balance between supply and demand. Moreover, it does so in a useful, quantitative way. It tells the supplier how much expense, risk and effort she should expend to increase the supply. This calculation may even bring new suppliers into the market. It also indicates the degree to which it is sensible for the consumer to change their demand. When by fiat we pretend that the price has not gone up, it’s like covering up the signposts, and we shouldn’t be surprised when those supplying no longer attempt to increase the supply, and those demanding can’t be bothered to reduce their usage of that particular commodity.

Gas Prices: The Real Story

It’s amazing what you can learn if you just ask a question or two instead of assuming you already know the answer.

Why are gas prices spiking today?

Gouging, right? It’s the evil big oil companies ripping us off again!

Actually, no, it isn’t.

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It’s been more than a few hours, and shortages are already here.

So the price of a gallon of gas is skyrocketing, even at stations, like Pilot, that have enough gas to get through the interruption without going dry. So why are they raising their prices? Aren’t they gouging?

Nope. If you’ve been out in Knoxville at all today, you’ve seen long lines of cars at gas stations. You’ve seen people filling up cars, trucks, motorcycles, lawnmowers and gas cans. They are in a panic mode, and they’re buying more gas than usual. Even though Pilot has enough to get through the crisis at normal levels of sales, there’s no way they can sustain sales at the rate they are going. So what do they do? They raise prices. By raising prices, they discourage people with brains from buying more gas than they need. They discourage people from driving more than they need to. In effect, they are encouraging conservation by using market forces rather than governmental coercion.

And it will work.

Filed under: The Myth of Price Gouging , econ 101, economic myths, gas prices, gasoline, Gasoline prices, price gouging, supply and demand

The Economic Myth That Wouldn’t Die

The “price gouging” myth is one of the most pervasive pieces of economic nonsense that I’ve heard. Little wonder that the Stalinist media pushes this class warfare propaganda it every chance it gets.

Likely inundated with complaints by economically ignorant consumers, politicians react to this “threat” of sudden rising prices totally unaware of (or insensitive toward) the damage they’re actually creating.

“If sellers don’t raise prices, supplies vanish. Anxious buyers line up and often buy more than they need, just in case. Those not at the front of the line may get nothing. [...] [Y]ou allow people to raise prices — even to “gouge” — because only people who REALLY need them will cough up the money. Gouging also encourages greedy entrepreneurs to rush in with much-needed goods, or to look for more supplies.”

Ironically the same news station promoting price gouging as fact is the same news station that debunked it in May of 2006. Nice job!

Gas Price Gouging Hits Hurricane States — Officials Are Instituting Emergency Anti-Price Gouging Laws in Their States by CHARLES HERMAN, ZUNAIRA ZAKI and SCOTT MAYEROWITZ

More on the myth of price gouging below:

Walter E. Williams Explains “Price Gouging” Myth

Say you owned a small 10-pound inventory of coffee that you purchased for $3 a pound. Each week you’d sell me a pound for $3.25. Suppose a freeze in Brazil destroyed half of its coffee crop, causing the world price of coffee to immediately rise to $5 a pound. You still have coffee that you purchased before the jump in prices. When I stop by to buy another pound of coffee from you, how much will you charge me? I’m betting that you’re going to charge me at least $5 a pound. Why? Because that’s today’s cost to replace your inventory.

Historical costs do not determine prices; what economists call opportunity costs do. Of course, you’d have every right not to be a “price-gouger” and continue to charge me $3.25 a pound. I’d buy your entire inventory and sell it at today’s price of $5 a pound and make a killing.

The Myth of “Price Gouging” by Alex Epstein

Price gouging is myth; market determines what price is fair Matt Hittle

Filed under: The Myth of Price Gouging, What Liberal Media? , economic myths, gas, gas prices, Hurricane, Ike, Oil, oil prices, petrol, price gouging, prices, What Liberal Media?