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GlennG Group Title

I remain puzzled as "supply" always refers to what the company is willing to produce at a given price as if they are willing to produce more if the consumer will pay more. Reference was made to gas lines. The lines at the pump were not due to price ceilings but to the actual scarcity of oil secondary to the embargo. Even though economics is the study of "scarcity" true scarcity is not addressed, rather supply is referred to as what amount the producer is willing to put out into market. Please clarify.

  • 2 years ago
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  1. htarko Group Title
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    I think that the gas lines were due to an artificially created decrease in supply (embargo) in the face of a price ceiling and gas rationing imposed by the government. The issue of the cause of the scarcity itself is not the question. That is, a given a level of supply of a commodity (regardless of the cause) will cause the price to seek a level at which the current supply = demand and produce equilibrium. If the price is fixed too low coupled with an artificially decreased supply by external agents (eg. governments or companies) and not by the market then there will be too much demand at the artificially fixed price and a shortage will result. The cause of the imbalance of supply and demand is not addressed by microeconomics. Only the effect. The long lines were a result of price controls and rationing.

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