Posted on 09/16/2008 7:59:48 AM PDT by djsherin
The Huntsville Times reported on September 12 that, in response to the looming threat from Hurricane Ike, Alabama Governor Bob Riley declared a formal state of emergency. The governor's declaration of emergency activated the state's price-gouging law, which makes "unconscionable pricing" illegal during times of emergency. The Times quoted Riley as saying that he thinks "a threat to public health is a strong possibility due to the shortage of fuels."
Hurricanes don't cause shortages, however.
Price controls do.
A "shortage" occurs when the amount of a good demanded exceeds the amount of a good supplied at the prevailing price. In other words, shortages happen when the price is too low. The market mechanism fixes this automatically by moving us forward along the supply curve and backward along the demand curve until we reach a price at which the quantity supplied and the quantity demanded are again equal.
Hurricanes along the Gulf Coast are likely to do two things. First, they are likely to increase demand for gasoline as people flee the storm and look for fuel to power generators. Second, a hurricane that hits a major oil-producing region will almost certainly knock supply offline in the short run. An increase in demand coupled with a reduction in supply means that the price will go up.
Higher prices tell people to economize on gas and other essentials by cutting out nonessential driving. They also have the benefit of attracting supplies from elsewhere: profit-seeking entrepreneurs in regions that are not affected by the hurricane would, in anticipation of higher profits, redirect their supplies from unaffected areas toward places where they are most desperately needed.
(Excerpt) Read more at mises.org ...
ping
...a hurricane that hits a major oil-producing region will almost certainly knock supply offline...
Ok, I'm not an economics expert but wouldn't "knocking supply offline" cause a shortage?
Sheesh.
Hurricanes don’t help but they hurt a heck of a lot more than they would if we had adequate refining and transport capacity.
Anyone who lived through the Jimmah Cahtah era knows the correct answer.
Woo hoo! A Galveston guy on FOX just now looking at his house said, “That’s ok, we’re Texans and we’ll make it work.”
Please, we're dealing with the Mises cult and Libertarians here. Don't use your common sense.
I think this guy is trying to say that reduced supply will lead to a shortage if the price is held constant(price controls) Why? because holding the price constant will not reduce demand and the reduced supply will quickly drop to no supply and gas stations will run out of fuel. If the price is allowed to rise, the demand drops as people stop driving as much or find other ways to get around. You can see it happening in the broader fuel markets as gas gets to $4 - $5 a gallon. There is a lag effect, but oil prices are declining as demand drops and we start to look seriously at alternatives.
Thanks!
Government price controls are one of my BIGGEST pet peeves in case you couldn’t tell ;)
That’s basically it.
See post #9.
Hurricanes cause short-term interruptions in the delivery of goods and services. Normally, there is enough in the pipeline, so to speak, to tide over short periods of time, in storage somewhere, already distributed, and there is only a short further delivery to be made by the “middlemen”.
Only when sufficiently large parts of the production points or distribution systems are disrupted, is there much potential for shortage. But considering that the world supply of oil is INCREASING, as evidenced by the FALLING prices of crude oil, this temporary interruption in the supply from the Gulf does not harm the overall access to petroleum.
Now, if I could just get my car to run on crude oil...
Probably, but it seems certain that ANNOUNCING a hurricane does.
Why else can you explain the rise in gas prices at the mere mention of a coming breeze.
But when NO DAMAGE actually occurs the prices seem to take a long time to go back down
It would cause a scarcity. Diamonds are scarce but there is no shortage because when capitalism works properly prices move to equalize supply and demand.
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