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During a shock is exactly when price controls are most destructive as they prevent an efficient allocation of the scarce supply to those with the greatest need
by jsmith99 5y ago
During a shock is exactly when price controls are most destructive as they prevent an efficient allocation of the scarce supply to those with the greatest need (assuming willingness to pay is a proxy for that).
- marcosdumay 5y ago> assuming willingness to pay is a proxy for that Hum... Does that assumption ever hold? Willingness to pay is a proxy for your early earnings and ROI. It correlates very weekly to anything else.
- pydry 5y ago>Hum... Does that assumption ever hold? Never
- chii 5y ago> the greatest need and the greatest ability to pay. "Need" has a moral component, which the market does not price in. But still i would argue that price control do more harm than good.
- evandijk70 5y agoIn extreme cases, this does not work. Eg. in a desert with a supply of 9 water bottles and 10 potential buyers. All buyers have the same need (buy a bottle of water or die of thirst). In an efficient market, the price of a water bottle would go to the amount of savings of the poorest person + 1 cent. The poorest person will die of thirst.