Controlling Prices to Our Detriment | Foundation for Economic Education

Controlling Prices to Our Detriment | Foundation for Economic Education: 'As the hurricane approaches individuals’ demand for certain commodities, such as water, batteries, canned food, etc. increases, meaning they would like to buy more of these goods. This gives sellers an incentive to raise the price, as the goods began to fly off the shelves much faster than usual. While the motivation to raise the price might be purely greed-based, it actually benefits consumers and society as whole. The increased price has two important functions. First, it induces sellers to supply more of the good. At the higher price sellers will increase the quantity of the good, thus providing more of the good for individuals to buy (satisfying the increased demand). Second, it discourages other consumers from buying too much of the good. In other words, the higher price helps ration the good amongst more individuals. Demand curves slope downward, meaning the lower the price the higher the quantity each individual will buy. By raising the price each individual will by less of the good than if the price were to remain at the pre-storm level, leaving more for others. Thus, in an unhampered market, the price rises and more consumers get what they need.

If the government stops sellers from increasing the price then a shortage will ensue. Why? Well first, demand has risen but sellers are still only willing to supply the same amount as the pre-storm level. Thus eliminating the advantage of the increased quantity supplied mentioned above. Second, with the increased demand consumers see the lower price as an incentive to take more for themselves. Their motivation to conserve and take less (leaving more for others) is eliminated. This creates the shortage. Meaning many individuals will find the shelves completely empty when they arrive at the stores. The result is that more individuals will go without the very necessities the government, in enacting the price control, is trying to make sure they can get.'