In April there was a flurry of blog posts from economists on price controls and inflation in Venezuela.
Read this article from the Times: http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html?_r=1
How does this relate to the theories from the chapter?
This chapter was about "Supply, Demand, and Government Policies." The first story is set in Venezuela and President Hugo Chavez is setting price controls on specific grocery items to make them more affordable to his people. Unfortunately it is backfiring on him because the producers of these goods such as milk, coffee, and sugar, are barely making any profit and it doesn't benefit them to produce large quantities of these items to allow more people to buy them. Therefore, with the minimal amounts of products the people have to wait in these ridiculously long lines for hours at a time with hopes of there being something left in the grocery store to buy when they finally get into the store!
There could be supply...there definitely is demand. With the government controlling and setting prices the producers and manufacturers of these in-demand products are not incentivized to keep producing. The Venezuelan government is so afraid of capitalism that it is going in a completely opposite direction, and not a good one. I'm not saying that capitalism is the end all and say all but socialism has its drawbacks, especially in this situation.
This chapter was about "Supply, Demand, and Government Policies." The first story is set in Venezuela and President Hugo Chavez is setting price controls on specific grocery items to make them more affordable to his people. Unfortunately it is backfiring on him because the producers of these goods such as milk, coffee, and sugar, are barely making any profit and it doesn't benefit them to produce large quantities of these items to allow more people to buy them. Therefore, with the minimal amounts of products the people have to wait in these ridiculously long lines for hours at a time with hopes of there being something left in the grocery store to buy when they finally get into the store!
There could be supply...there definitely is demand. With the government controlling and setting prices the producers and manufacturers of these in-demand products are not incentivized to keep producing. The Venezuelan government is so afraid of capitalism that it is going in a completely opposite direction, and not a good one. I'm not saying that capitalism is the end all and say all but socialism has its drawbacks, especially in this situation.
Now consider a different case. After Hurricane Katrina speculators brought in bottled water, but charged quite a lot for it.
Had Price Controls Been Imposed:
Speculators would not have brought in as much water, if any, knowing they would not have made the profit they would have had there been no price controls. More people would have been able to afford the water but who says there would be any bottles to buy?
The Concept of Fairness and How It Fits This Theory:
Fairness in the case of the bottled water would ideally mean that everyone would be able to buy the bottled water at an affordable price and the speculators would also profit financially. Speculators selling at ridiculously high prices where only the few could afford to buy the water would not be fair to the buyers and selling the water too cheaply is not fair to the speculators who have made the initial investment in the water and need to at least make their money back.
Had Price Controls Been Imposed:
Speculators would not have brought in as much water, if any, knowing they would not have made the profit they would have had there been no price controls. More people would have been able to afford the water but who says there would be any bottles to buy?
The Concept of Fairness and How It Fits This Theory:
Fairness in the case of the bottled water would ideally mean that everyone would be able to buy the bottled water at an affordable price and the speculators would also profit financially. Speculators selling at ridiculously high prices where only the few could afford to buy the water would not be fair to the buyers and selling the water too cheaply is not fair to the speculators who have made the initial investment in the water and need to at least make their money back.
As a side note, here is an interesting blog posts on price floors and stock pricing:
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