Quote:
Originally Posted by
Michael Wolf
The production capacity of EVERYTHING is limited. Supply, demand, and the signals that can only be sent by market prices account for how we allocate our inherently limited resources to produce things. So basically, your assertion is completely wrong. You've asserted the price will go up and left it there.
Here's a much more likely, logical scenario in a true market economy: The price would indeed go up, at first, as demand spikes. This causes more entrants into the market of production - instead of making the same amount of pencils and plastic knives and band-aids and shampoo and washclothes and T-shirts and ice cream cones and radios and coffee makers etc...that are made during normal times, producers allocate their resources to get in on the booming testing kit business, driving the price back down very quickly. Likely driving it down below what it was in the first place. After all, aren't our socialist friends constantly railing against how greeeeeeeeedy the evil capitalists are? Would they not want to get their greedy, grubby hands on this big money that the testing kit business is now offering?
The main thing in a non-market economy that stops this is the gov't "saving us all" by placing a price ceiling on such an important good to avoid "price gouging," thus leaving little to no incentive for producers to ramp up production or new ones to enter the market. Thus limiting supply so lots of people remain untested.
Why, it's almost as if this crazy wackadoodle theory is borne out empirically as well! The one thing I might need to revise about my comment above is that culture matters too - while 34 states have passed anti price gouging laws since 1995, there is also a cultural bias. I might argue that the laws contribute to this cultural bias and I suspect they do - but it's probably not solely due to the laws. So while gov't is the main impediment, a cultural bias against so-called "price gouging," due to lack of economic understanding of how beneficial that practice actually is, is also probably at work.
Quote:
I wish the Surgeon General had studied economics. The Law of Supply and Demand — the most fundamental principle of economics — tells us that shortages cannot exist when prices are allowed to adjust to changes in supply and demand. Or, to put it another way, shortages *only* arise when the price mechanism is impeded, whether by law or by custom.
In the United States, and around the world, both law and custom prevent market prices from adjusting when such adjustment is most urgently needed: when there is a supply disruption and/or a spike in demand for that product. That is happening right now, when it comes to “N95” masks, the type that filter out 95% of particles and are deemed most effective in preventing the spread of coronavirus.
I actually bought a box of 10 of these masks last year for a trip to Mumbai, India, where I used them — quite successfully — to protect me from the highly polluted air in that city. It cost about $15. Yet today at all of the drug and hardware stores around town that used to sell these masks, I see signs on their front doors that say, “No masks available.”
Demand has spiked for these masks. Whether this spike in demand is based on sound medical opinion or not, it is a fact. If prices were allowed to adjust, they would rise. This would have two effects. First, it would reduce the quantity purchased. Those who were not willing to pay the higher price for the masks would not get them, while those who urgently needed the masks — and could pay for them (think: hospitals!) — would find them readily available.