Where did all of the ... go?
Two issues:
More individuals want to buy more of the good at every price
Entire demand curve shifts to the right, becomes less elastic
More individuals want to buy more of the good at every price
Entire demand curve shifts to the right, becomes less elastic
At the original market price, a shortage! (qD>qS)
More individuals want to buy more of the good at every price
Entire demand curve shifts to the right, becomes less elastic
At the original market price, a shortage! (qD>qS)
Sellers are supplying Q1, but some buyers willing to pay more for Q1
More individuals want to buy more of the good at every price
Entire demand curve shifts to the right, becomes less elastic
At the original market price, a shortage! (qD>qS)
Sellers are supplying Q1, but some buyers willing to pay more for Q1
Buyers raise bids, inducing sellers to sell more
Reach new equilibrium with:
Suppose instead, government has price gouging laws, a price ceiling at the original price, P1
Qd>Qs: excess demand, a shortage!
Sellers will not supply more than Q1 at price ¯P1
Suppose instead, government has price gouging laws, a price ceiling at the original price, P1
Qd>Qs: excess demand, a shortage!
Sellers will not supply more than Q1 at price ¯P1
For Q1 units, buyers are willing to pay PD!
If prices were allowed to adjust: buyers would bid higher prices to get the scarce Qs goods
Sellers would respond to rising willingness to pay, and produce and sell more
But the price is not allowed to rise above ¯P1!
Official price is ˉP, sellers gain monetary revenues
Competition exists between buyers to obtain scarce Qs goods
Goods are distributed by non-market means:
Rents to those who can distribute the scarce goods
A relatively high price:
Conveys information: good is relatively scarce
Creates incentives for:
"The Canadian National Post, citing the Canadian Food Inspection Agency, says that 'There are no shortages or disruptions to [food] production, importation or export,' and that 'the shelves remain stocked.' ... 'A price surge as a result of natural market forces is not something that is regulated by Canadian competition laws or otherwise. Canada’s competition laws generally don’t interfere with the free market.' ... Canadians will have enough food to eat. But it will be more expensive.
A supermarket in Denmark got tired of people hoarding hand sanitizer, so came up with their own way of stopping it.
— Birger (@Birger_s) March 18, 2020
1 bottle kr40 (€5.50)
2 bottles kr1000 (€134.00) each bottle.
Hoarding stopped!#COVID19 #Hoarding pic.twitter.com/eKTabEjScc (via @_schuermann) cc @svenseele
"As the nation’s economy and health-care system struggle to adjust to the pandemic, more and more states are reexamining some of their oldest occupational and business regulations—rules that, although couched as protecting consumers, do far more to limit competition...While some states have ordered their occupational-licensing boards to speed up the licensure of new health-care practitioners, others...are granting immediate licensing reciprocity to any practitioner licensed in any state...Even Florida, which has long jealously guarded its occupational-licensing regime to prevent semiretired snowbirds from poaching on the locals’ turf, [is] allowing out-of-state health-care providers to practice telemedicine in the state without a license."
"Also being reexamined are state certificate-of-need, or CON, laws. A product of 1970s-era economic regulation, CON laws require health-care providers to prove that new services are “needed” before they may purchase certain large equipment, open new or expanded facilities, or—as is crucial now—offer home health-care services. Often, these laws give an effective veto power to existing medical providers, allowing them to torpedo new competition for their own benefit...Basic economics predicts that competition reduces prices for consumers, and occupational licensing works directly to stifle competition."
"The University of Minnesota economist Morris Kleiner, a leading researcher on occupational licensing, estimates that licensing costs consumers nearly $200 billion annually. This might be justifiable if licensing produced substantial improvements in quality, yet most research has failed to find a connection between licensure and service quality or safety."
How did the U.S. government only manage to produce a fraction as many testing kits as its peer countries? There have been three major regulatory barriers so far to scaling up testing by public labs and private companies: 1) obtaining an Emergency Use Authorization (EUA); 2) being certified to perform high-complexity testing consistent with requirements under Clinical Laboratory Improvement Amendments (CLIA);...
...and 3) complying with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule and the Common Rule related to the protection of human research subjects. On the demand side, narrow restrictions on who qualified for testing prevented the U.S. from adequately using what capacity it did have.
Giving money to people does not mean they will spend it (except perhaps on necessities to survive)
Our number 1 goal should be minimize harm to individuals
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