The Concise Guide to Economics - Softcover

Jim Cox

Softcover

ISBN 10: 1570872929 ISBN 13: 9781570872921

Publisher: Laissez Faire Books, 1997

Synopsis

Sets out the arguments in favor of the free market in 37 short chapters covering topics over which critics of the free market find fault, along with other topics as well. Each chapter includes references to further investigagte a topic. Everything from minimum wage laws, to price gouging, regulation, inflation, price controls, history of economic thought, the calculation debate, etc.

About this title

About the Author

Jim Cox is an Associate Professor of Economics and Political Science at the Gwinnett Campus of Georgia Perimeter College in Lawrenceville, Georgia and has taught the principles of Economics courses since 1979. Great Ideas for Teaching Economics includes nine of his submissions. As a Fellow of the Institute for Humane Studies his commentaries were published in The Cleveland Plain Dealer, The Wichita Journal, The Orange County Register, The San Diego Business Journal, and The Justice Times as well as other newspapers. His articles have also been published in The Atlanta Journal and Constitution, The Margin Magazine, Creative Loafing, The LP News, The Gwinnett Daily Post, The Georgia Libertarian, The Gwinnett Daily News, and APC News. Cox is a former member of the Academic Board of Advisors for the Georgia Public Policy Foundation and President of the Georgia Association of Economics and Finance (2001-2002).

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Chapter 7.

Price Controls Price controls are the political solution enacted to stop price inflation. [See Chapter 21 for an explanation for the cause of inflation.] The controls do not work. Prices are determined by supply (willingness and ability to sell) and demand (willingness and ability to buy). The price resulting from supply and demand which clears the market is not changed by a price control (a legal limit on price). The legal price is merely a misstatement of the actual conditions and is comparable to plugging a thermometer so that it never can read greater than 72 degrees though the actual temperature may be higher. The law of supply and demand cannot be repealed. People will call for price controls as a way to make goods available cheaper than they otherwise would be. The price controls do not make the goods cheaper and in fact cause a shortage of those goods as the demand quantity will be greater than the supply quantity. Not only do price controls cause shortages but they in fact make the goods more expensive! How can this be? The shortage resulting from the price controls cause consumers to pay for the good in question in ways other than a price payment to the seller. To take an example from the experience in the U.S.: the price of gasoline was legally limited between August 1971 and February 1981. At a time when gasoline could not be legally sold for more than 40 cents a gallon, the estimated free market--supply and demand clearing price--was 80 cents. Using a ten-gallon fill-up it would appear that the consumer is saving $4.00 per tank full (10 gallons x 80 versus 40 cents). While the consumer is not paying as much to the seller for the gasoline the consumer is in fact paying dearly for the gasoline in other ways. Probably the greatest expense is in the form of the consumer's time. The shortage results in extensive time spent waiting in line for the purchase. Time is money; a consumer's time has value. Using a minimum figure of the consumer's time being worth $2.00 per hour, a two-hour wait in line per fill-up wipes out any alleged saving from the price controls. But the consumer is not through paying. The idled gasoline used waiting in line is another form of consumer payment, say 10 cents per fill-up. Now we have the price controls actually costing the consumer an extra 10 cents per tank. And there's more costs to the consumer. The difficulty of buying gasoline which the shortages cause takes mental energy and planning and is an aggravation for the consumer he would much rather avoid. (Doubt this last point? Check your own behavior: Do you call around to the gas stations in your area before stopping for a fill-up, or do you avoid that aggravation although you know that not ! checking will often result in paying a higher price than necessary?) These expenses continue in the form of the violence and the fear of such violence that can result from tensions mounting while waiting for gasoline in long lines (two shootings did occur in this situation during the 1970's price controls--imagine how frequently this would happen today!) Other expenses might include the purchase of a siphon hose for legitimate or even illegitimate gasoline transfers. Also, siphoning gasoline carries its own severe costs when poorly executed. All of these further consumer costs only make the expense of gasoline that much greater than the free market price. The big difference between paying the higher price for the gasoline due to the price controls and paying the higher price directly to the seller is that these costs borne by the consumer do not function to induce further supplies of gasoline the way payment to the seller does. Block, Walter, editor Rent Control, Myths & Realities

(Vancouver, British Columbia: The Fraser Institute, 1981). Schuettinger, Robert and Eamonn F. Butler Forty Centuries of Wage and Price Control: How Not to Fight Inflation (Washington, D.C.: The Heritage Foundation, 1979). Skousen, Mark Playing the Price Controls Game (New

Rochelle, New York: Arlington House Publishers, 1977) pp. 67 - 86, 109 - 126. Reisman, George The Government Against the Economy

(Ottawa, Illinois: Caroline House Publishers, Inc., 1979) pp. 63 - 148. Katz, Howard The Paper Aristocracy (New York: Books in

Focus, Inc., 1976) pp. 113 - 115, 117. Rothbard, Murray N. Man, Economy, and State (Los Angeles: Nash Publishing, 1970) pp. 777 - 785.

Edition details

• Publisher: Laissez Faire Books
• Publication date: 1997
• Language: English
• ISBN 10: 1570872929
• ISBN 13: 9781570872921
• Binding: Paperback
• Edition number: 2
• Number of pages: 168