So I try to stay on top on economic news, and one thing that is confusing me is why government enforced price caps on products wouldn’t work? All I hear is about how strong the economy still is, record profits for corporations, and increasing wealth of the country’s most affluent people. Wouldn’t price caps cause: 1) more wealth for the average consumer 2) still profitable corporations (albeit not the record profits that they continue to reach) 3) more equitable wealth distribution?
In: 182
You see this happen in the US when price caps are instituted around hurricanes.
Stores can’t raise prices. A few people get to the store first and buy all of the batteries.
It’s not profitable to pay a company a special rate to load a truck in Maine full of batteries and drive them to Florida. So the store shelves are empty, which is perfectly legal for the store and does not open them up to lawsuits.
The store could raise the prices on the batteries, that way the first person to show up wouldn’t buy them all. People who *really needed* a pack of 4 D cell batteries could buy them for ~$50 or whatever. *And* there would be a truck on its way from Maine jam packed with more batteries that will arrive soon which the store could sell right after the storm for prices that reflect the cost and risk of buying that shipment. But that’s illegal. Because people think the stores are profiting instead of blaming their fellow shoppers. So the shelves are empty, which again is perfectly legal.
When a country institutes price caps for other reasons, like to “stop inflation” the same concept plays out. Why would a grocery store buy a shipment of rice for $100 that they can only sell for $30? So they don’t. So sometimes the government subsidizes the price and ships the store a little bit of rice for $29 that the store can sell for $30. So the first people to the store buy *all the rice* because they know if they don’t the next person will. And then the shelves are empty until the next pathetic shipment from the government arrives. The government can’t ship much rice because they are buying it for $100. This is a temporary measure to get to the next corrupt election or keep people just barely surviving enough so they don’t riot.
Latest Answers