fatvegan

I was reading our economics text book yesterday. And they were talking about the goverment's response to shortages. Often a government will make a fixed price that's lower than the natural price, so consumers don't have to pay more. The book said that this caused a loss in what economists call "economic surplus" - it's the difference between the highest amount I would pay for something and what I actually pay. It's free extra value I get out of stuff, which is different for everyone. The book says price-fixing is bad because it's kills value outright. It doesn't just distort things, it actually reduces the amount of stuff bumping in the economy, which most people would probably say is bad (in itself at least, forgetting about the environment and materialism and the like).

In general it is "bad" in the sense that less stuff produced the the people who most want the stuff won't always get it. But in the case of shortages (short term at least) there won't be any production loss, because production is limited by a logistical problem, not a lack of demand for the stuff at cost price.

Price fixing during a short-term shortage will cause rationing problems, but will almost definitely help the poor.

This post is dedicated to Robert Howie.