Price Gouging And Price Caps On Gasoline.

I am so disgusted with all this hysteria about price gouging and price caps. This is just another example of the ignorance that plagues the American public thanks to government ran schools.
Since they do not teach the fundamentals of economics in public schools no one seems to understand the simple rules of supply and demand that I learned in private schools.

It is the rules of supply and demand that are effecting gas prices not price gouging. In fact there is no such thing as price gouging in a competitive free market, meaning a market without monopoly, like gas companies. Price gouging is eliminated in a competitive free market society. Here is how it works.

Let's say you have 3 gas stations owned by three different people. We will call them stations A, B, and C. All three gas stations pay approximately the same price for gas. All 3 companies charge about the same price for gas. Why do they do this? To stay competitive and remain in business. If gas station A decides to raise his prices for no reason he will not stay in business long because stations B and C are lower. What if gas station A lowered his prices? Then gas station B and C no doubt would lower their prices. So in order to get price gouging to go on you would have to get every gas station to go along with it. In a competitive market it is not going to happen why because someone will undercut your price if they can.

Any politician who cries that there is price gouging going on is one of 2 things. They are either lacking the knowledge of economics or they are taking advantage of your ignorance to increase their power while trying to convince you that they are doing something about it so they will have your vote. (Republicans and Democrats are both guilty.) Instead they should be educating you about the real situation like I am going to do here.

The rules of supply and demand are pretty simple. If supply is high and demand is low then prices will be low. If supply is low and demand is high then prices will be high.

Let's put it into real life situation and lets use oatmeal. When scientist came out with a new study that said people who eat oatmeal daily reduce cholesterol and have less risk for heart disease people started buying oatmeal in record numbers. This made the demand for oatmeal rise and the price rise because the supply didn't match the demand. Supply was low demand was high. So farmers who saw this increase in oatmeal double there production of oatmeal and the prices went back down. Supply met demand.

This is what happened with gas. In a market that already had a high demand and low supply the supply became even lower raising prices even higher. In other words there was a gas shortage.

Now let's take the above situations and go back to our 3 gas stations. Our gas stations supply has just been cut off. They will not be getting any gas for a while they are told. This would make the supply even lower and the demand was already high. Gas stations A decides to not follow the rules of law and demand. It keeps its prices the same. Gas station B and C decide to raise their prices. Gas station A runs out of gas while gas station B and C remains in business serving gas to the community.

Now lets take a look at price caps. This is another bad idea. There is absolutely no doubt that price caps on gasoline would accomplish only two things. The caps would be used by politicians to show that they are really trying to doing something for you and it would cause widespread shortages of gasoline.

Never in the history of mankind has there ever been a more efficient way of allocating resources and insuring a supply of needed commodities than the free market system. When government starts putting caps on prices the free market system collapses. With government price (or profit) caps you move from free enterprise to the government-managed economies that are best illustrated by life in the old Soviet Union.

In the old communist economies of East Europe there were always lines for everything as things were always in short supply. That was because the prices were kept artificially low. There was no incentive to produce goods for artificially low prices. When they switched to capitalism the lines went away.

I find it interesting how a lot of Governors cry about price gouging and high gas prices and say they think price caps should be in place. However, they want the federal government to in place the caps? I wonder why they do not want to place the price caps?

Here are some columns about so called "price gouging."

'Price gouging' in Florida

In praise of price gouging