When natural disasters and other emergencies strike, two things are certain. First, many essential goods will run out of stock at stores. Second, economists will complain that if only prices would rise in response to the increase in demand, shortages could be avoided.
Let’s take the current winter storm passing through much of the center of the nation, importantly including the southern US where both individuals and governments are unprepared for major winter storms. Here is a sign up at Home Depot in Arkansas:
I can verify that many people in Arkansas don’t have snow shovels. I’ve seen folks using dust pans and leaf rakes to try and clear their driveway. This video is a few years old, but I have no doubt that someone in Arkansas right now is strapping a widescreen TV box to their lawn tractor to clear snow.
So why no snow shovels in Arkansas at Home Depot? The common answer: it doesn’t snow much here, so the stores don’t stock many, and then when it does snow everyone rushes out to buy them.
Simple enough, but the economist says: WRONG! The reason Home Depot doesn’t have any snow shovels in Arkansas is because they didn’t raise the price. Why do economists insist on this?Continue reading