Increase In Price And Supply example essay topic

In the article 'Censoring Pleas for Help', Dwight R. Lee talks about government price controls. The author likens government price controls to government censorship, arguing prices are how markets communicate with one another. The example used to demonstrate this point is the price regulations the government enforces after a natural disaster, freezing prices on such items as labor, construction materials and basic necessities. However, the article demonstrates later how these regulations, while seemingly in place to help protect consumers (in this case disaster victims), actually hurts them. While the intent of the 'price gouging laws' is good, they actually do more harm than good.

By controlling the prices of these materials, these laws limit the supply of these materials and effectively stop the free market from communicating its increasing demand. Further more, these laws seem to go against the very idea of a free market. The free market communicates by the fluctuation of prices as the market deals with shortages and surplus until an equilibrium point is found where the price of an item generates an equal amount of quantity supplied and quantity demanded. If the price falls below this point, quantity demanded is greater than the quantity supplied and there is a shortage in the market. This causes the price to rise, and with it the quantity supplied. As the price rises, the quantity demanded falls.

Eventually it reaches the equilibrium point. If the price rises above the equilibrium point, there is more of a quantity supplied than a quantity demanded and that will create a surplus. This causes the price to lower, increasing the quantity demanded and decreasing quantity supplied until it reaches equilibrium again. The market depends on these fluctuations in price for communication between suppliers and consumers. With out this communication the market would be in chaos.

Suppliers would not know how many products to supply and consumers would have no way to inform suppliers of their wants. These laws misdirect the flow of supply by not allowing the increasing demand for these items to be reflected in the market as an increase in price. This can be demonstrated by looking at a graph representation of the supply and demand curves relative to construction materials. Before the natural disaster struck, the market for construction materials was at its equilibrium price point of Fifty dollars. There is no surplus or shortage of goods at this point.

However, after the natural disaster strikes, the demand increases, shifting the demand curve to the right. Since there is a change in demand, at the current price there is not enough supply to meet current demand. This shortage would normally cause the price to raise and the higher the price, the greater the quantity supplied. This is how the market communicates its need for more construction materials after the disaster.

With the government enforcing price controls, the price cannot rise, even though there is a greater demand for the materials. Since the price does not rise, even though demand has risen, there is a shortage of supply in the market. A shortage normally would lead to an increase in price and supply to meet the rising demand for an item, but in this case, no such price rise and subsequent rise in the quantity of the supply follows due to the restrictions on price. In other words, the demand can not be met for construction materials and homes will not be able to be rebuilt. The government should not be allowed to dictate to a supply source what price materials can or can not be sold for. If people wish to display their want of an item by forcing prices up to meet the current demand for that item, why should they not be able to purchase those items.

While it could be argued that the demand for these items after a natural disaster should be met even with out the ability of prices to rise, but why should a supply source pay more money to ship their product out to a location farther away when they can sell it for just as much locally and therefore increase their profits. By allowing prices to rise, there is more incentive for suppliers to ship their materials to the much-needed areas, and they would be more willing to do so. Naturally these supply sources are in business to make money, and they are going to sell there supplies in the market most willing to pay for them. This is how these price regulations hurt the consumers. If they are willing to pay more for these supplies, more of these supplies will be sent to them. The intent of these laws is to stop some unscrupulous suppliers from taking advantage of people who are in a dire need of certain items after a disaster strikes.

However, are these people being taken advantage of by these suppliers, or are their abilities to express their needs for these items being squashed by the government? If the market value of an item is decidedly higher than what the government allows for, then the government is forcing the market into a shortage. Not only is the government infringing upon the rights of the businesses, but it is also infringing upon the rights of the consumer. If the price is not allowed to rise, the government is revoking the consumers' right to express its demand for a product.

These restrictions need to be removed. If the government removes these restrictions, the market will be able to communicate properly, businesses would not be under control of government price regulations, and our valuable limited resources would be most effectively put to use delivering supplies where consumers most see fit.