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Price Gouging and Scarcity

This article is about how American laws which explicitly forbid buyers and sellers transacting with each other at a price which is agreeable to both of them.

It is a bit polemical but it makes the case very powerfully. High prices signal shortages, and these signals are received by suppliers who act on them to exploit them, and in doing so bring down those prices.

There does seem a deep-seated human instinctive resentment of traders. I recall a study in experimental economics where traders who did a lot of work determining the state of supply and demand in some institution in conditions of shortage (a prison?) were resented by the non-traders, even though the effort the traders expended exceeded the spread they made on the items they were trading. I wish I had a reference for this study.

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This page contains a single entry from the blog posted on July 7, 2007 8:29 PM.

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