price "gouging" not necessarily bad

[AmbitV]

I keep seeing reports and people complaining about price gouging of oil. Well there is a reason the price is going up - demand leaped.

Prices serve an important economic function. The raising of prices is needed in order to allocate the resources to those who need them the most, assuming those who need it the most are the ones willing to pay the higher price.
I've heard reports of people going to their local Walmart and buying loads of gas containers. If you keep a price ceiling, people like that will just keep hoarding the gas and cause an artificial shortage.

 

[iamwiz82]

<< I keep seeing reports and people complaining about price gouging of oil. Well there is a reason the price is going up - demand leaped.

Prices serve an important economic function. The raising of prices is needed in order to allocate the resources to those who need them the most, assuming those who need it the most are the ones willing to pay the higher price.
I've heard reports of people going to their local Walmart and buying loads of gas containers. If you keep a price ceiling, people like that will just keep hoarding the gas and cause an artificial shortage. >>



Yes, but it has already calmed down. If they were worried about a shortage, they would ration gas, not jack prices.

 

[Viper GTS]

There are two sides to a supply/demand relationship, & you're ignoring the supply side of it.

For prices to rise due to high demand, there must be a supply that is less than the demand. If both supply and demand remain high, prices should remain low.

Gas stations KNOW that supply isn't limited, yet they're still raising the prices. They are artificially creating demand by preying on people's fears, & raising gas prices only contributes to that fear.

That should never happen.

Viper GTS

 

[RSI]

Viper actually paid attention in economics class? DAmn... it was too boring for me. But I remember this stuff... really I do!!

 

[iamwiz82]

<< There are two sides to a supply/demand relationship, & you're ignoring the supply side of it.

For prices to rise due to high demand, there must be a supply that is less than the demand. If both supply and demand remain high, prices should remain low.

Gas stations KNOW that supply isn't limited, yet they're still raising the prices. They are artificially creating demand by preying on people's fears, & raising gas prices only contributes to that fear.

That should never happen.

Viper GTS >>




you forgot to say "all things being equal"

 

[Hossenfeffer]

Preach on, brother Viper!

 

[AmbitV]

the SHORT-TERM supply is very limited. Gas stations don't just have limitless supplies at hand. They have to get refueled. I have seen signs on tv of gas stations posting "sorry no more gas". What if people really needed that gas to get to work or something? Instead most of the gas probably went to some greedy, fearful hoarders.
Raising the price is a tool to quickly bring the demand back to equilibrium.

 

[mithrandir2001]

If an individual station wants to raise prices through the roof, that's their own perogative. If they collaborate with other local stations to drive up prices, however, that is illegal. The notion is that if a station charges too much, patrons will visit other stations that are charging lower prices. This ebb and flow of commerce will produce an equilibrium price.

You have to figure that if all stations in one area started charging $5/gallon (and it only cost them $1/gallon to buy), one station would inevitably break and charge $4.50 or $4.00 to get people to their station instead of others (they still would be making a tidy profit and the added traffic might compensate for the reduced profit per sale unit). To get market share and their cut of market profits, the other stations would have to price their fuel in line with market demand...and in this hypothetical case it would be downward. As long as gas stations do not act like a cartel, they can basically charge want they want.

 

[AmbitV]

ttt