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> Most American states prohibit price hikes during a disaster, which prevents companies from producing more during high demand. Sorry, but how exactly does tha
by CaptainZapp 6y ago
> Most American states prohibit price hikes during a disaster, which prevents companies from producing more during high demand.
Sorry, but how exactly does that follow?
- deathgrips 6y agoIt's basic microeconomics. Firms produce widgets until the marginal profit they get from the widgets goes down to 0. The marginal profit is based on the marginal cost of producing a widget and the current price of the widget. If the price goes up, the firm can now afford to produce more widgets. If the state introduces price controls to keep the price fixed during increased demand, the company cannot afford to produce more to meet this demand and shortages will result. Normally shortages lead to increased price in the short term and in the long term lead to increased production and movement to the price equilibrium.
- kortilla 6y agoScenario: -oil shortage. -Price is capped at $50/barrel to prevent “price gouging”. -A bunch of shut down wells that are only profitable at $70+ stay shut down. Do you see how price caps prevent supply with higher production cost from entering the market?