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It sounds like the price mechanism had the intended effect. It encouraged more efficient use of the scarce resource and a search for substitutes.

by ggreer 6y ago

8note 6y ago
Is it more efficient to limit the usage to richer people? Or to the people that need it the most? It sounds like you think these two groups are the same? What goes into that thinking?
- ggreer 6y ago
  I'm quite sure this guy could afford a bottle of ethanol at the higher price. He just didn't want it enough to pay that much. If price caps were in effect, he would have bought some ethanol and someone else who wanted it more (as shown by their desire to pay more) would be without. As I said, this is an example of the price system ensuring efficient use of a scarce resource. But to address your point: Allowing consensual trade between buyers and sellers doesn't limit usage to richer people, and there is no system that prioritizes goods by who "needs it the most" (which is an extremely subjective judgment). If you institute price caps, you simply prioritize people who are lucky enough to get there first. Moreover, those people tend to buy more than they actually need because they're worried about the good being scarce in the future, and the price is currently low. This creates more shortages since more of the scarce good sits unused in people's garages and pantries. At best, some of those goods are sold on the gray market at an even higher price than if the store had sold them at market rates. There is no better way to ensure that a scarce resource is put to use than to let people make voluntary transactions. That incentivizes more manufacturing, more conservation, and more substitutes for the scarce good. In the best case, little harm is caused by command economy practices such as price caps, rationing, and first-come-first-serve. In a crisis they can be catastrophic, such as when entrepreneurs are arrested for selling ice after a hurricane: https://www.econlib.org/library/Columns/y2007/Mungergouging.html https://www.econlib.org/library/Columns/y2007/Mungergouging....

It sounds like the price mechanism had the intended effect. It encouraged more efficient use of the scarce resource and a search for substitutes.

by ggreer 6y ago

It sounds like the price mechanism had the intended effect. It encouraged more efficient use of the scarce resource and a search for substitutes.

8note 6y ago

Is it more efficient to limit the usage to richer people? Or to the people that need it the most? It sounds like you think these two groups are the same? What goes into that thinking?

ggreer 6y ago
I'm quite sure this guy could afford a bottle of ethanol at the higher price. He just didn't want it enough to pay that much. If price caps were in effect, he would have bought some ethanol and someone else who wanted it more (as shown by their desire to pay more) would be without. As I said, this is an example of the price system ensuring efficient use of a scarce resource. But to address your point: Allowing consensual trade between buyers and sellers doesn't limit usage to richer people, and there is no system that prioritizes goods by who "needs it the most" (which is an extremely subjective judgment). If you institute price caps, you simply prioritize people who are lucky enough to get there first. Moreover, those people tend to buy more than they actually need because they're worried about the good being scarce in the future, and the price is currently low. This creates more shortages since more of the scarce good sits unused in people's garages and pantries. At best, some of those goods are sold on the gray market at an even higher price than if the store had sold them at market rates. There is no better way to ensure that a scarce resource is put to use than to let people make voluntary transactions. That incentivizes more manufacturing, more conservation, and more substitutes for the scarce good. In the best case, little harm is caused by command economy practices such as price caps, rationing, and first-come-first-serve. In a crisis they can be catastrophic, such as when entrepreneurs are arrested for selling ice after a hurricane: https://www.econlib.org/library/Columns/y2007/Mungergouging.html https://www.econlib.org/library/Columns/y2007/Mungergouging....