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Price limits will cause shortages. A company will only continue to produce if it can make a profit at a rate that is better than other places where it can put i

Price limits will cause shortages. A company will only continue to produce if it can make a profit at a rate that is better than other places where it can put its money. If a price limit is set and a company can't make a profit, then it's better not to produce. Therefore, making the shortage worse. You could say that the producer can't make more than x% profit. The problem with that is that in a volatile market prices move up and down, so a guaranteed profit makes the price worse for consumers since you are guaranteeing a profit for the producer, which is not the case now. Also, reputable producers will try hard not to look greedy in a market of shortages so they have an incentive not to raise profits more than what people would see as reasonable- may be 5%-10% not 50%-?%. They don't want the customer to be more upset than what they already are. An artificially lower price will cause an increase in demand since more people will be able to afford the product. Given a product that's short in supply, the rise in demand will increase the shortage. Politicians commonly advocate a limit since people intuitively think it makes the situation better, which in fact it does not. The best thing to do is to let the market forces work rather than placing a limit.

vba616 4y ago
>The best thing to do is to let the market forces work rather than placing a limit. Free markets, to paraphrase a famous saying about the US Constitution, are not a suicide pact. Price controls alone will increase demand, and therefore some other method of rationing has to be planned and substituted. I agree politicians are dangerous to the extent they do not grapple with this. Nobody wants to have allocation based on how long you can wait in line or how politically connected you are, like the stereotype of the Soviet Union. But even the capitalist democracies had rationing systems during WWII. Markets are optimizing machines, and like every optimizing contraption, human beings get to set them up and determine the boundary conditions. In extreme conditions, people without much money get a disproportionate amount of utility from essentials, compared with people who have a lot. Nothing about a "free" market necessarily entails a guard rail preventing millions of people falling beneath a threshold of starving or freezing. It is a terrible mistake to go around acting as though there is a benevolent God watching who will save us if we are only faithful to "market forces". We create and maintain markets, and live or die as a result.

vba616 4y ago

>The best thing to do is to let the market forces work rather than placing a limit. Free markets, to paraphrase a famous saying about the US Constitution, are not a suicide pact. Price controls alone will increase demand, and therefore some other method of rationing has to be planned and substituted. I agree politicians are dangerous to the extent they do not grapple with this. Nobody wants to have allocation based on how long you can wait in line or how politically connected you are, like the stereotype of the Soviet Union. But even the capitalist democracies had rationing systems during WWII. Markets are optimizing machines, and like every optimizing contraption, human beings get to set them up and determine the boundary conditions. In extreme conditions, people without much money get a disproportionate amount of utility from essentials, compared with people who have a lot. Nothing about a "free" market necessarily entails a guard rail preventing millions of people falling beneath a threshold of starving or freezing. It is a terrible mistake to go around acting as though there is a benevolent God watching who will save us if we are only faithful to "market forces". We create and maintain markets, and live or die as a result.