Not Enough Soap?
Suppose we have ten bars of soap and ten people. Everyone gets a bar, everyone’s happy. Then, for some reason, we have two more people show up, thus meaning we do not have enough bars for everyone, despite the fact that each person wants a bar of soap (demand has increased without increasing supply). There are only four ways this situation can be resolved:
- Increase the cost of soap.
- Increase the amount of time before a person gains access to soap (as time is a resource, this is really just increasing its cost).
- Make more soap (which may or may not be an impossibility).
- Mandate the cost of soap (in both money and time) along with the amount of soap, thereby creating a mandated shortage. Or rather, accept that you have a shortage, and that access to soap is essentially chosen by lottery.
It doesn’t matter what economic system you’re working under, those are your only four options. No amount of law or pandering can change this fact—it can only change which option is chosen by the market (by making some of them illegal). “Market”, in this case, being used in a very abstract sense, to account for theoretical communism.
So understand my cynicism when people—especially politicians—describe a “solution” to an “economic problem” but completely ignore this fact, if they don’t outright claim it false. I would love to see a legislature attempt to actually repeal the Law Of Supply And Demand. I would then like them to follow by repealing the Law Of Conservation Of Energy.
May 9th, 2008 at 4:23 pm
Next thing you know they’ll try to repeal the law of gravity!
May 13th, 2008 at 10:16 am
What if someone cut their bar in half and sold it to one of the new people? They could then use that money to buy someone else’s half to get a full bar, and then a crazy cycle would start. Or is this just entirely outside the realm of possibility and would only happen if someone like me were involved?
May 13th, 2008 at 10:42 am
For the purpose of discussion, I assume that you can’t have half a bar of soap. I suppose a fifth option would indeed be to cut the soap: increasing supply by reducing the quality of the product.
Not all products are so easily cut in half, though :)
May 16th, 2008 at 4:46 pm
I think many people are not able to relate such small-scale examples to situations where volumes are very high: if there are billions and billions of an item, how can there not be enough for everyone?
I have also seen people confused by the market in action. In examples, the problem comes first: a shortage. Then, later, the solution (cost increases or rationing systems of some sort) is implemented. In reality, absent a pre-existing regulatory system, a forseeable shortage causes cost increases, which prevent the shortage. So demand for the product at market rates never exceeds supply: if demand is not rising and there are no supply shortages, why has the cost gone up?
May 16th, 2008 at 6:40 pm
Definitely. It was a big “whoa” moment for me, even, when I realized that when I buy (say) a cell phone, that means there’s one less cell phone out there for someone else to buy. All goods are produced in finite amounts, and they all end up somewhere.
Oddly enough, this led me to buying more things from companies I don’t like. Why? Because if I have it, that means someone else (who might end up liking the company and buying more of their stuff) doesn’t.
if demand is not rising and there are no supply shortages, why has the cost gone up?
There is the possibility that some other factor along the supply line has increased in cost. The increased cost of everything due to the increased cost of gas is an excellent example of this. If there were a sudden shortage of, say, a material used in building car-making machines, then the cost of cars would go up because it costs more to make them.
People seem to put their trust in tangible, concrete things (government) than in abstract, amorphous things (the market). The question is: where does God lie in that?