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ZorbaTHut  2yr ago (text post)   5684 thread views

Small-Scale Question Sunday for September 18, 2022

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

Culture war topics are accepted, and proposals for a better intro post are appreciated.

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rom a narrow, short-term efficiency perspective, raising price above the marginal cost of production is suboptimal (and therefore "bad") only if you want to maximize total welfare (which most people probably don't).

this isn't right, because 'cost of production' in the theoretical sense includes all costs of the "good" of "the thing you buy at the store, including store service". The cost of transportation, logistics to actually have the stuff there, paying people to be at the store, etc has significantly increased in cases where people criticize price gouging (disasters, for instance), so the price needs to increase for the market to provide all the goods people demand at some price. So - if suddenly everyone wants to buy 100lb of rice, the store probably doesn't have enough rice to give all of them because they predict demand and stock enough to satisfy it, so immediately the price can go up so those who want it most get it, and then the price can stay up a bit to provide an incentive for the store to quickly satisfy the need (say, delivering a thousand bags of rice now instead of during the scheduled delivery a month from now). Or if there's just been a tornado, providing rice or other supplies is just harder than usual, and higher prices mean that within normal market mechanisms it is provided, and people have incentives to provide it in ways that require more resources.

Somewhat contrived example.

Could you elaborate on what exactly isn't right in that sentence? I don't see how your example contradicts what I said. When the marginal cost or demand increases, producer would adjust its price up, naturally. But when producer compensated all his expenses and still raises price -- it benefits producer at a cost of consumers (this raise is not a Pareto improvement).

My criticism is that in basically all IRL cases called 'price gouging', what economics tries to capture in marginal cost or demand has increased in some way, and people are just claiming it isn't.

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