Class #36 "Price Fixing" (11/28/11)

By using prices to decide which goods get produced, people are forced to economize their decisions in a market. When you ration by price, only the people who desire the good the most get it.

Centralization vs. Decentralization
Central Planner must decide: (1) who produces it, (2) who gets it, (3) how much to produce. There is no way for one person to know all of this information.
The market is more inclined to experiment as opposed to the government who tends to use 1 size fits all interventions.

Price Fixing
The price of a good is a reflection of what is going on in an economy. A response from policy makers, if they don't like the price, is to change the price. Buyers don't like high prices; sellers don't like low prices.
If gas prices go up, you always hear complaints of price gouging. If you see low prices, then firms are exploiting workers and unfairly competing against other firms. If prices are all equal, then firms are colluding with each other.
Price Fixing Example: Rent Control

-Rizzo

Daniel Gaona