Hey everyone. I hope everyone is safe out there. Things are getting a bit crazy in New York. The number of positive tests for Corona Virus are rising. NY is currently the highest number of positive tests in the US. This data will constantly be changing as more people are tested and as time goes on. If you look at the supermarket shelves, you will notice that there is a big shortage of toilet paper and alcohol hand sanitizer. I believe one of the reasons is due to anti-price gouging laws.
In many states in the US, once a National Emergency is declared, then Anti-Price Gouging laws go into effect. This essentially means that everyday necessities must stay at the same price even though demand is surging and supply is rapidly diminishing. In fact, there are telephone hotlines in which you can call in anonymously to report any price gouging. This can lead to heavy monetary fines and even jail time. This may seem like the moral thing to do, because then low income families cannot purchase goods if the price rises, but then instead what happens, is that you have people hoarding these goods and the stock disappears. Essentially, there is no toilet paper for anyone. The truth is, that rising prices are necessary to keep goods available to the masses.
Price discovery send signals to buyers and sellers. As a good becomes more scarce, and its demand increases, then this means that people are willing to pay more money for that particular item. The opposite is also true...as the good becomes more available and the demand decreases, then its price decreases. Simple Supply and Demand economics. Higher prices would also cause people to use less toilet paper, or essentially, be more efficient with it because it is becoming more expensive and harder to obtain. Higher prices would cause less shortages. "In fact, in a free, unfettered market, there is no such thing as a shortage or surplus because prices rise and fall so that markets clear...Murry Rothbard."
Buyers and sellers are entering a voluntary exchange in which they both expect to benefit. Each offers something that they value less than the item that they will receive in exchange. In this case, the buyer values the toilet paper more than his paper or electronic money, and the seller values the paper money or electronic money more than the toilet paper. This means that even if prices rise on that toilet paper, the buyer is still willing to pay more money for it because of the benefit that the toilet paper will provide. If prices are frozen, then this manipulates the signals of the market. People can easily purchase 6 months to 1 year of toilet paper simply for "peace of mind." If enough people purchase these large amounts of TP without prices rises, there will be no supply left for someone who desperately needs it because they did not purchase 6 months of TP ahead of time. The person without TP will gladly pay more money to have some toilet paper rather than no TP at all. If the prices do not rise, then once the new stock of TP comes in, you better believe that that TP will get hoarded or stores will have to start enforcing limits on purchases. It will be just like the "Bread Lines." You will have to wait on longer and longer lines, for inferior products.
The moral of the story...be weary of government intervention. Let the free markets be free. Stop manipulating prices to cover up the scarcity of such items. The price gouger is not the enemy. I know this is a tough pill to swallow for most, but it the right way to handle the situation. Thanks for reading and stay safe out there.
Here is a link to learn more...
https://mises.org/power-market/anti-gouging-laws-are-reason-there-toilet-paper-shortage
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