Thursday, September 01, 2005

Price Gouging...?

What do people consider to be price gouging or unfair business practices? Broadly, people are upset when prices for everyday items rise when people need them most. That is, when increased demand causes prices to go up. If costs actually go up people don't seem to mind. This actually squares with economic theory pretty well. In perfect competition, price should just be marginal cost. So all of a demand increase is absorbed as a quantity increase. But when there is some degree of market power on the supply side, demand increases translate into some quantity increase and some price increase.

1 Comments:

Blogger Isaac said...

Nothing substantive: Mark Kleiman has a nice post on the same subject, in case you haven't seen it.

1:58 PM  

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