WHAT IS ECONOMICS?
Economics is the study of the optimal utilization of scarce resources and the consequences of the interaction of the forces of demand and supply for the determination of price and quantity.
WHAT I LEARNED & WHAT I FOUND INTERESTING?
I learned that the interaction of supply and demand determines price and output. Not only at the micro or strategic level have the prices of goods and services influenced economy but also at the micro or tactical level. For instance, when a price of product or service increases the real income, and the purchasing power decreases. It is because individuals now have less money to spend on goods and services. The decrease in the size of consumption slows down economic activity causing a decrease in investment and an increase in unemployment. However, when the price of goods and services decreases, the real income increases. The increase in real income translates into higher consumption, which is good for the economy.
From the study of the subject, I learned that demand for goods and services are influenced by price, preference, and availability. With the price, demand has a negative relation, which implies that whenever price increases, the quantity demanded for a product or services decreases (the change in preference or change because of exogenous factors shift the demand curve). However, what I found most interesting was the claim that Price Gouging is good for the economy.
DETERMINANTS THAT ARE DETERMINING GAS PRICES
As per the article, there are two factors that determine the gas the price; 1) the hurricane and the other is 2) price gauging. The hurricane has genuinely/naturally/organically disrupted the supply of gas, which has shifted the supply curve to the left, causing an increase in price and a reduction in the output. Price gauging has also reduced the supply, but artificially. For instance, suppliers are making gas available only at particular prices. Both factors seem similar as in both factors shift the supply curve to the left; however, they are neither identical nor are they one as one causes the shift (to the left) naturally whereas the other causes the shift deliberately or inorganically (Sorkin).
GOVERNMENTS’ PRICE CONTROLS
Governments introduce price controls to regulate prices. Price ceilings are introduced so that sellers/producers may not charge a price more than the set price. Price-floors are introduced to benefit producers/industries, and their objective is to ensure that a price does not drop below the set price. Both these actions undermine supply and demand, which is why they create complications. For instance, Price-ceilings usually cause shortages, whereas price-floors cause surplus. Effective price-ceiling is always set below the equilibrium price. Also, institutions must be strong to implement price-ceilings effectively. Generally, price regulations do not produce the desired result; however, this does not mean that government must never implement price controls. During natural disasters, profiteers try to charge as much price as possible, because the demand curve becomes quite steep (indicating that an increase in price would not affect quantity demanded). In such scenarios, governments must act and take measures to regulate prices.
CONCLUSION
In the end, it can be concluded that Demand and Supply are the true forces of economics, which shape an economic system. When measures are taken to undermine these forces, complications occur. These complications affect economies. However, we must also recognize that the capitalist system or the free-market economy is inherently flawed, which necessitates the role of government. For instance, during the Hurricane, producers/sellers deliberately reduced an already reduced supply of gas to make more money. In such cases, organic demand and supply forces become weak, which makes room for government intervention.
Work Cited
Sorkin, Andrew Ross. “Hurricane Price Gouging Is Despicable, Right? Not to Some Economists.” New York Times. New York Times, 11 September 2017. Web. 19 September 2018. https://www.nytimes.com/2017/09/11/business/hurricane-price-gouging.html.
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