Plain Sense Economics

This is why economists sometimes have a bad reputation (in addition to forecasting 9 of the last 5 recessions…) This op-ed piece in the Boston Globe poses a question on whether sellers should raise prices in times of acute demand – i.e. price gouging. The straight up economic answer is that gouging should be allowed. From the piece…

It never fails. No sooner does some calamity trigger an urgent need for basic resources than self-righteous voices are raised to denounce the amazingly efficient system that stimulates suppliers to speed those resources to the people who need them. That system is the free market’s price mechanism — the fluctuation of prices because of changes in supply and demand.

Thank you to Anya Quinn on Flickr for the use of this image.

We all reflexively abhor an opportunist, who raises prices on a critical item just when it is needed the most. Yet, pricing is what allows society and its members to make thoughtful judgements on the best use of scarce resources. Read through the article, and ponder a bit.

P.S. – My friend, Melanie, writes PrattleNog, and her blog just got a day’s worth of fame on the WordPress home page. She teaches and works with adult students at Marylhurst University and sometimes teaches a course on Social Media. I noticed that she has been scrupulous about crediting the source of her images, and properly chastened I vowed to emulate her. This particular image is made available for sharing under the Creative Commons licensing site/movement. I’m including the official attribution below, but if you are interested in the whole digital copyright brawl, follow the CC link for more information.