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Tuesday, June 17, 2008

Price gouging or rational rationing?

The Undercover Economist highlights the importance of price as rationing mechanism, especially in times of shortage. I think this is a particularly interesting example because the seller specifically says that the reason he raised prices was to get people to stop panic-buying and it's pretty clear that the alternative was a physical shortage, leaving some buyers completely out in the cold. As I was reading this, it did occur to me that one upside of today's crazy gas prices is that, as an economics teacher, it allows me to talk about the gas shortages of the 1970's without sounding like I'm just old!

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