Longer gas lines, please

November 10, 2012

Economics gives you a perspective on the world, but it’s a perspective that’s often at odds with public opinion. Long lines and rationing at gas stations are a classic example.

Last week a colleague took a taxi from Newark Airport to the city and had (roughly) the following conversation:

Colleague to taxi driver:  How are things?  Any trouble getting around after the hurricane?
Driver:  No, the roads have been clear. The only trouble is getting gas. I spend a few hours every day waiting in lines at gas stations.
Colleague:  Do you think they should raise the price?
Driver:  No, that would be wrong.

(Not wanting to walk to the city, the colleague changed topics.)

The point, of course, is that the two things are connected: the lines and the price. Popular opinion is overwhelmingly against letting the price rise, and many states have laws against price “gouging” during emergencies.

To an economist, this simply makes a bad situation worse. If the price rose, you’d likely see both an expansion of supply (how hard is to drive a tanker from Pennsylvania to New Jersey?) and a contraction of demand (some people won’t drive, and those who buy gas at high prices might choose to buy less). Or to be more formal:  letting the price equate supply and demand maximizes economic welfare (the “surplus“). But as my colleague decided, sometimes it’s better to be quiet, even when you’re right.

Related links:  MR, more MR, Cheap Talk, MoneyBox, and Posner (see esp the comment about ships in distress).


2 Responses to “Longer gas lines, please”

  1. Jack Says:

    Exactly. Under the current system we distribute gas to those who need it the most by forcing those who need it most to wait in a long line. A “suffering” that no one benefits from. With higher prices the buyer would suffer with higher prices, but at least someone else benefits. No wasted suffering.

  2. […] get worked up when Uber charges more at peak times (New Years Eve) or gas stations raise their prices (remember Sandy?). Why don’t we see the same in business markets? The price of transporting […]

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