Supply and Demand Refresher

September 28, 2009

More words from Milton and Rose Friedman:

Economists may not know much.  But we know one thing very well:  how to produce surpluses and shortages.  Do you want a surplus?  Have the government legislate a minimum price that is above the price that would otherwise prevail.  That is what we have done at one time or another to produce surpluses of wheat, of sugar, of butter, of many other commodities.

Do you want a shortage?  Have the government legislate a maximum price that is below the price that would otherwise prevail.  That is what New York City and, more recently, other cities have done for rental dwellings, and that is why they all suffer or will soon suffer from housing shortages.  That is why there were so many shortages during World War II.  That is why there is an energy crisis and gasoline shortage.

This is how the law of supply and demand should be introduced.  This makes intuitive sense to most people.  It’s much more intuitive than the supply and demand curves.

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