Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 2
What an incredibly stupid statement.

Why is it stupid? I think it makes perfect sense!

What is the role of prices? They are signals to the market that allow it to allocate resources efficiently. What does that mean? When supply is high and demand is low, low prices dissuade providers from further swamping the market. When supplies are low and demand is high, it tells supplies that there is a dire need and gives them an incentive to meet it. On the consumer side high supply and low demand (low prices) encourages them to increase demand and reduce the supply (storage costs money and is an inefficiency). Low supply and high demand (high prices) tells the consumer to conserve the supply, or seek out alternatives.

So, high gasoline prices are nothing more than the market's way of telling you (the consumer) to conserve gas by driving less, buying a vehicle with better gas mileage, etc. or seeking alternatives such as riding a bicycle or buying a vehicle that runs on alternative fuels. Just because it may not be applicable to do these things right now for you doesn't mean that these aren't acceptable alternatives for any consumers. If the consumers don't change their activities (they ignore the market signals) the market will keep raising prices until they are forced to do so... that is the role of prices after all.

This isn't some grand conspiracy, it's just the best way to make sure resources are allocated correctly. The alternative, having some group (or person!) determine prices by somehow divining the millions of decisions buyers and sellers come to in order to determine prices (which the market handles quite well) isn't nearly as effective. It takes longer to get to the right answer (if at all), which leads to supply problems on one sort or another... which leads to more cost for the consumer, not less. In other words, if you think things are bad now, they could certainly be much worse!

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.