A Tale Of Mythical Proportions

Nothing brings out the socialist in people like tragedy. Normally staunch capitalists change their tunes almost overnight when the free market reacts normally to supply shortages and demand increases that effect their own personal finances. But in a nation where redistributing wealth from workers to retirees is seen as just I suppose this is what happens when as a society we are not educated in economics.

So to justify this ignorance of why things happen many create a scapegoat. They'll claim that heartless businesses are just out to make a quick buck off of people who have little or nothing left. OH THE HUMANITY! After all the easiest thing to do is to blame a building or a faceless corporation even though that "corporation" has thousands of real faces including employees and stock holders.

The cry goes out from the mountain tops "This is unfair! We are being gouged! Please daddy government save us!"

So it is time again for a lesson in Economics 101. And I'll be generous and give this lesson to you absolutely free.

However you have to do two simple things to get this free lesson. First commit these words to memory: "Price Gouging does not exist." Ok? Now you have to get up and walk around saying this memorized phrase out loud for 10 minutes. I don't care if you are at home and think your family will call the men in white coats or if you are work and will get nasty stares from your boss and co-workers. You have to do this. It is part of the deprogramming you must go through to understand what comes next.

Go ahead and do it. I'll still be here when you get back.

*whistles*

Finished? Good. Now let's begin.

There are two components to how much a product can be sold for. One is how much of this product is available. The other is how much the consumer wants of said product. These are often referred to as "supply" and "demand". And where supply meets demand is the selling price.

Now if this price a good or service can be sold for is not at least slightly above the cost to produce that product then that product doesn't get made - but that is another lesson.

Supply and demand can be represented graphically as follows:
http://www.thelandofthefree.net/conservativepoliticalopinion/sdchart.gif">http://www.thelandofthefree.net/conservativepoliticalopinion/sdchart.gif

Moving anywhere away from this price point means either you have excess supply to demand or you have excess demand for the supply. And if you have either of those two situations the price moves towards this equilibrium where supply equals demand because no one wants stock they cannot sell and no one wants less stock than they can sell. Why? Because it means that they are not being efficient. Supplies that sit on the showroom floor cost money and prevent new items from coming in. Empty showroom floors means that there is no money being made.

Now as you can see if supply decreases (curve "S" moves to the left) price increases result.
http://www.thelandofthefree.net/conservativepoliticalopinion/sdchartsdec.gif">http://www.thelandofthefree.net/conservativepoliticalopinion/sdchartsdec.gif

Or if demand increases (curve "D" moves to the right) price increases also result.
http://www.thelandofthefree.net/conservativepoliticalopinion/sdchartdinc.gif">http://www.thelandofthefree.net/conservativepoliticalopinion/sdchartdinc.gif

Its so simple. Now once again I want you to get up and walk around proclaiming "Price Gouging does not exist." for another 10 minutes then come back and click on the link to page 2.

*hums*

Now what happens if say a hurricane blows through and destroys everything? Why demand increases AND supply decreases! Gee no wonder prices go up since both price increasing factors occur at the same time!
http://www.thelandofthefree.net/conservativepoliticalopinion/sdchartdisaster.gif">http://www.thelandofthefree.net/conservativepoliticalopinion/sdchartdisaster.gif

Ok let's continue.

Now that you understand the basics let's look at the side effect of rising prices because of lower supply and higher demand shall we?

"Demand" has two components: need and want. Before a hurricane some people do need generators but few people want a generator so demand is low. After a hurricane generators cost $300 instead of $100 because now EVERYONE wants one (i.e. demand is higher). There are either no new generators coming in to the area or at best the resupply of this resource is greatly inhibited (i.e. supply decreases). This means that only people that actually need the generator will buy them. Homeowners looking to run their AC for comfort and luxury (i.e. want) will not buy them and will complain loudly about how expensive generators are. But business owners who have stores full of perishable goods will buy them gladly. To them $300 for a generator is nothing compared to $150,000 worth of goods that are about to spoil.

Higher prices lead to the most effective use of resources. Instead of only a couple people using the limited supply of generators and benefiting for convenience, many more benefit because necessities are preserved. Gee, and they tell us capitalism is bad?

There is also another reason why the supply and demand curves act the way they do. When supplies dwindle and shelves become empty, businesses make less money than they normally do. Its simple to understand. Without product to sell they cannot make money (at least not legally).

But yet they still have many of the same expenses to pay. That gas station owner 50 miles north of the flooding caused by a hurricane being told she will not be getting any new gas for three weeks because the refinery is under water has got to pay her taxes, utilities and her employees for those weeks. So she marks her remaining gas at $5.00/gallon and hopes that the higher margin pays the bills until life returns to some semblance of normality.

Understand that? Higher prices, and perceived higher "margins" do not automatically translate into higher "profits" which is the complaint levied against "price gougers". And let's face it, if people are buying the gas at $5.00/gallon then apparently it does have that value to some. You may have to do without or deal with using less until prices return to normal but then again that simply means that you do not need as much of that resource as you might think.

But to some that is "gouging". And when those people are people that have never run a business, met a pay roll or studied the basics of economics maybe it is understandable. But now that you have read this article you don't have an excuse. So it is up to you to educate your family and friends.

"Gouging'' is nothing more than the excuse of people who failed to prepare being hit with the reality that they did not prepare.
About the Author

A web commentator J.J. Jackson is a Constitutional Originalist and a staunch conservative. J.J. Jackson is the owner of American Conservative Politics - The Land of the Free (www.thelandofthefree.net), American Conservative Daily (www.americanconservativedaily.com), Right Thing (www.cafepress.com/rightthings) and American Infidel T-shirts (www.americaninfideltshirts.com)

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