"Cuba ponders how to fix socialist economy"

[Kidlicious]

Originally posted by VJ
Monopolies or cartels are fought with new small businesses which every citizen should be free to create. When monopolies and cartels notice a new kid on the block offering the products they produce with lower prices than they're using on a local area, they sometimes counter this by committing a conspiracy to lower the price temporarily and thus getting the small player out of business. This is exactly where the government steps in: the small business owner notifies anti-trust authorities of price fixing, and the government forces the cartel or trust to stop. There is never need for price controls if there is political will to enforce anti-trust laws, in a field of production where profits are huge, future competition and thus lowered prices are inevitable. Well, if there is a free market, of course.

It's not really about the fear of monopolies the way you are defining them. When there is a shortage of a good the producers of that good have monopoly power. There's no conspiracy happening. Take taxis for example. When there are a shortage of taxes you may be lucky to get 1 taxi. In that case you have to pay the driver whatever you are willing to pay him, and no less. Just because there are more taxi drivers, none are available. It's not really a monopoly the way you would define it, but it works the same way. Now the thing that has to be done to change the situation is to create more producers (taxi drivers). That either can or can not be done regardless of the economic system, but it takes time. If you just create a free market you are still going to have high prices for taxes, until the supply corrects and then it's going to correct too much, and you are going to have a bunch of poor people who owe the bank for the taxi and can't make any money as taxi drivers. You see it's much more complicated than you are making out.

[Kidlicious]

Originally posted by Kontiki


That would only be the case (and debatebly so at that) for services. There also seems to be a large issue of skimming and/or stealing goods and selling them on the black market. That's 100% pure profit.

Well, I'm thinking about the taxi drivers charging too much. I suppose there are people also making profit.

[Imran Siddiqui]

Originally posted by Kidicious
True, but shortages can be a better situation if consumers get more benefit.

How about you deal with a shortage and see how much benefit you can see out of it.

[Kidlicious]

Originally posted by Imran Siddiqui




How about you deal with a shortage and see how much benefit you can see out of it.

The benefit is more important than the shortage. I hope that is obvious for you.

Consider this demand schedule for a consumer.

P Q
5 1
4 2
3 3
2 4
1 5


The free market price is first $4. Then it's fixed at $3. The quantity sold in the market decreases by 50%, so assume that this consumer got his share. So he previously bought 2, and now gets 1. Before the consumer spent $8, now he spends $3. So he has 5 extra dollars. Subtract the value of the second item that he would have purchased if he could have. That's $4, looking at the demand schedule.

So assuming that a 25% decrease in the price creates a 50% decrease in the quantity the consumer gets a net benefit of $1.

Of course you will argue that the decrease in the quantity will be more than 50%, but that's really just ridiculous. Not that that ever stopped you before.

If you take it to the extremes you get situations that aren't as advantageous to the consumer, but the general case is that price controls are good for the consumer even considering the cost of the shortage.

[Drogue]

That says absolutely nothing about the effect it has on the consumer. Firstly, you're picking numbers out of thin air. Why does the quantity fall by 50% if the price falls from $4 to $3? Why would the consumer value the second item at the same amount? (if he would have bought the 2 of this item at $4, clearly he values this item more than the other one he's forced to buy).

Trying to say what is better or worse for a consumer requires indifference curves or revealed preference. There's no other way to show if a consumer is better off or not. And plucking demand curves out of thin air and assigning arbitrary figures to the effect on quantity sold do absolutely nothing to further your argument.

[Drogue]

Originally posted by Imran Siddiqui


How about you deal with a shortage and see how much benefit you can see out of it.

Having said that, he does have a point, and with precedence. Take Britain during World War II. There isn't enough food for those who can afford all the food they want to take that, and there to be enough left for the poorer members of society. So rather than have a situation where those poorer members cannot have a healthy diet, the government rations food so that everyone has a nutritionally healthy diet.

In that situation, a shortage was better dealt with by rationing than by a market mechanism, which would have priced ordinary people out of the market for meat, eggs, sugar and various other core food groups.

[Arrian]

Yes, in extreme situations such as an island nation under siege/embargo... hey, wait...



There is funny quote (misquote) from a Vietnamese minister that I found a while back:

"We are not without accomplishment. We have managed to distribute poverty equally." - Nguyen Co Thatch, Vietnamese foreign minister.

Whether that's accurate or not I cannot say.

-Arrian

[Kidlicious]

Originally posted by Drogue
That says absolutely nothing about the effect it has on the consumer. Firstly, you're picking numbers out of thin air. Why does the quantity fall by 50% if the price falls from $4 to $3? Why would the consumer value the second item at the same amount? (if he would have bought the 2 of this item at $4, clearly he values this item more than the other one he's forced to buy).

Trying to say what is better or worse for a consumer requires indifference curves or revealed preference. There's no other way to show if a consumer is better off or not. And plucking demand curves out of thin air and assigning arbitrary figures to the effect on quantity sold do absolutely nothing to further your argument.

You're not following the argument. Go back to the last thing that Sikander said. I'm only arguing that price controls can benefit consumers in some cases, not that they always do. Also, I'm assuming the law of diminishing utility. That sould be clear from the demand schedule. Please, go back and read the thread form Sikanders last post and I will be happy to read any criticism after that.

[Drogue]

I'm not saying you're wrong, you're not. Price controls can benefit consumers in some cases. What I'm saying is that your example didn't add anything to your argument - you were right before you said it.

I just have a pet hate against economists pulling some random numbers to show that something is possible. Yes, it's possible, and you don't need to do all that to get it. It's what gives economists a bad name, as people assume it's all about pulling out random numbers and assumptions to show things.

[Kidlicious]

ok, but a lot of people here don't think that. (that price controls can benefit consumers)