Question’s in the title……
I’m no economist but I’m sure most of the cost of fuel is Fuel Duty (tax)….. so even though capping the price of fuel would mean governments making less money off fuel-duty, wouldn’t they make this back in VAT on other goods as consumer spending increases? (Because consumers have more money in their pocket?)
In: 2
I have 100 lemons. I’m selling them for 1 dollar.
Now, let’s say it costs 1 dollar to harvest a lemon. If I can’t sell lemons for more than a dollar, I’m just going to stop harvesting lemons. That will mean that even less people will get lemons.
If I can raise prices, I have a reason to harvest even more lemons. Even if my price of harvesting lemons goes up, I will still harvest lemons because people need them and I can make a bunch of money by selling them.
Point being that price caps often lead to scarcity when people realize it’s pointless to produce the product. It’s happened many times throughout history.
Oil companies are understandably wary about increasing production quickly, because they just experienced what happens when you overproduce oil. They literally had to pay people to take their oil in the early pandemic. Why would they scale up production if the profit they make is limited, but the amount they can lose isn’t limited?
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