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Thursday, September 01, 2005


Gasoline Price Ceiling?

Arnold Kling
". . . I tried to explain that if the futures price indicates that next week gasoline will be at $3.00 a gallon and you as a dealer bought it at $2.00 a gallon, it is neither in your interest nor society's interest for you to sell your gasoline at $2.00 a gallon.

I suggested that the best policy now would not be a price *ceiling* to hold down the price of gas, but a price *floor* to immediately raise it to a level that would slow panic buying. My idea is to have the government recommend a price per gallon of $6 through Labor Day, $5.50 from then until October 1st, and $5.00 for the month of October. The idea of having a pre-announced, staggered schedule is that it reward the people who put off buying gas and punish the idiots who are rushing to top off their tanks."

I agree with not using price ceilings, but disagree with using price floors. A price floor may slow panic buying but it may not. We can’t be positive on how society will react. A price floor could increase the panic. People could think that the prices may continue to rise, and who’s to say that would be wrong. Could the gas market really make a floor price work? What happens if the price of barrels does continue to jump? So dealer buys a gallon at $6.00 in October, would it be right to sell the gallon at 5.00?
We are being taught to look at the markets, and to try to reach efficiency. So if a price ceiling isn't beneficial to the market, economy or society why would a floor price be? We need to look at the market and what has to be done to make it efficient, if it isn’t already, not place a floor on the market just to “punish” people.
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