While that is true, for a given supply curve and given demand curve, the
shortage is greater the lower the price ceiling.
And, as the price ceiling is lowered, both the size of the shortage and
the queue increase -- since the price consumers are willing to pay rises
as the ceiling is lowered.
Seth
-----Original Message-----
From: Alex Tabarrok
Sent: Thu 10/25/2001 1:30 PM
To: [EMAIL PROTECTED]
Cc:
Subject: Price Control-Shortage versus Waiting
In teaching price controls, textbooks and teachers often show
the
(below-market) price control and then point out that at the
controlled
price the quantity demanded exceeds the quantity supplied -
Qd-Qs is
then labeled as a shortage.
Often this is followed up by talk about queues and time
wasted spent
waiting in line to buy at the controlled price. The implicit or
sometimes explicit implication is that the size of the shortage
is
directly related to the length of the queue - bigger shortage,
bigger
queue, right? Wrong!
The following point, while hardly original, is less
familiar than it
probably should be. The quantity demanded at the controlled
price is
completely irrelevant to the economics of the situation. What
matters
for determining queue length is the difference between the price
that
buyers are willing to pay for the quanity supplied at the
controlled
price and the price that sellers can legally charge.
The attached diagram in JPG and a higher quality image in
PDF shows
that in the typical situation the size of the shortage is
actually
inversely related to the length of the queue. Bigger shortage,
smaller
queue!
Thus the emphasis that textbooks place on the shortage
induced by price
controls is misplaced - more attention should instead be given
to what
is economically important which is the price buyers are willing
to pay
for the quantity supplied at the controlled price.
Best
Alex
--
Dr. Alexander Tabarrok
Vice President and Director of Research
The Independent Institute
100 Swan Way
Oakland, CA, 94621-1428
Tel. 510-632-1366, FAX: 510-568-6040
Email: [EMAIL PROTECTED]
