I must make a post on the blog. This is what i have so far. Please make critique.
Should i split each paragraph into smaller parts or is it fine how it is?
The Effect of Price Controls In On Supply of Goods.
To analyze this further, we must look at the role of prices in the market. Why do things cost the amount that they do, and who dictates these prices? All things held equal, we see that supply and demand dictate prices. Since goods are scarce, there must be a tradeoff to obtain them; if all goods were scarce, and free, then goods will not exist anymore since they all will be consumed without restriction. Suppose that in a city, the gas prices are very high, probably due to high demand or low supply. If the government takes no action and leaves the market to work, there will be no shortage since less people will try to obtain the gasoline as the supply shortens since the prices rise. Only for the most important uses, will the gasoline be bought for a high price. Let us consider however if the government put a price ceiling on the gasoline. The supply is low and the price is kept as if the supply was high. Consumption will be at the same rate as if the supply of gasoline was high, and thus these people will run into a gasoline shortage. We can see that the first few to buy the gasoline gain the benefit of this government intervention, but the people who did not get to obtain the gasoline were hurt, for there is no more supply. As such, the very government policies that are meant to help people, are hurting them.
Supply, Speculation, and Prices.
“Buy low, sell high”
Basic knowledge of supply and demand shows us that when prices are low, there is either: 1. Low demand, or 2. High supply; high prices are brought about by, 1. High demand, or 2. Low supply. The speculator buys a supply of X goods in areas in which they are lowly priced and sells those goods in areas that are highly priced (low in supply). For example, let us say that city X has an abundant supply of cows and dairy factories, and city Y doesn’t. The cost of milk in city X is very low, while in city Y it is very high. The role of the speculator is to seek mere profit. By buying for a low price and selling it at a high price he will gain large returns. A deeper look into this reveals that the speculator is moving the supply from city X to city Y. In turn, city Y benefits from lower prices of milk, while city X’s prices rise only by a little (since the supply is already abundant anyway). Eventually, as time goes forward, the constant moving of supply from 1 place to another equilibrates the market. City X and city y’s milk supplies are similar, and prices are similar, and hence, speculation merely makes the free market work faster and more efficiently. Speculation has a major role in natural disasters, famines, etc. when there is a major change in the supply of a good, speculators help move the supply of a good. For example, gasoline, from a city that is abundant, to a city in need.
If prices are controlled, lets say that in city Y with low supply, has a high price, and the government puts a price ceiling and makes the price the same as of city X’s. City Y will run out of supply very quickly, and since there is no price indicator (it stays the same due to the price ceiling), speculation will not exist, and supply will not be moved about. For the price no longer indicates the supply of the good for it is government controlled. City Y will run into great milk shortages, while city X will have vast amounts of milk that it may not even need.
The problem.
“New Jersey has a tough price gouging law to ensure that profiteers will not take unfair advantage of people at their most vulnerable – those who have been displaced from their homes, have limited resources, and are seeking fuel, shelter and the basic necessities of life,” said Governor Chris Christie.
Chris Christie ie correct when he says that prices rise because of profit seeking stores. However, motives aside, the higher prices lead to even and fair distribution of supply to the consumers. While the profiteer is only seeking a profit by raising prices, he is also instilling an unintended effect upon the economy: fair and even distribution of resources to the consumer.
By imposing his price laws, Governor Chris Christie has hampered the way New Jersey’s economy works. This governor sued distributors of goods because of his lack of economic understanding. One cannot simply ignore supply and demand with government regulations. By imposing these regulations the market will no longer function accordingly and distribution of resources will be uneven. Supply will run out in the times of crisis and many people will suffer.
This is the perfect case of unintended consequences.
In short, we can say that speculation aids in the quick equilibration of the market, and if prices are regulated and obstructed, the economy will not work.