Economics 101

It’s literally on the first day of a typical introductory economics course that students are typically taught that price caps lead to shortages. Shortage lead to non-price rationing schemes for what supply is available, such as long lines.

Unfortunately, our politicians seem to have less than one day of economics training. Laws against “price gouging” — that is laws that forbid the market to adopt the market-clearing price dictated by supply and demand — are nothing more than price caps, and lead directly to shortages. We see this playing out once again in the wake of Hurricane Sandy:

Without “price gouging” laws, the price would rise, thereby encouraging distributors to ship more gas to the area, and also¬†discouraging people from buying gas they don’t need. Also, it would put a stop to people waiting hours for gas.

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