Supply and Demand, part two

Suppose you have four people (one, two, three, and four) who want to buy ammunition.  Guy One is a big gunnie and has lots of ammo already, but he knows demand is high and shows up first thing in the morning.  He'll buy two boxes but is price sensitive because he knows what normal ammo prices are and has reloading tools.  Guy Two has a gun or two already but doesn't have a stockpile or reloading tools, and shows up at noon on his lunch break after Guy One says there's a run on ammunition.  Girl Three just got out of the hospital around 3pm because her ex-boyfriend and stalker beat her up.  She borrowed a gun from her dad and needs to find ammunition for it because dad didn't have any.  She'll buy one box at any price.  Guy Four shows up next week and is pretty laid back about it; he wants a box or two and doesn't much care whether the prices are high or low since he doesn't know what they "should" be.

You have one store that sells ammunition and that store has two boxes of ammunition. Demand is high because of a lot of gun control news.

Scenario A: The store prices their ammunition normally.  Guy One walks into the store and buys both boxes of ammunition.  Guy Two and Girl Three are out of luck.  Girl Three gets killed by her stalker.  Guy Four is pissed that he didn't get any ammo.

Scenario B: The store rations ammunition, one box per customer, at normal prices.  Guy One and Guy Two get ammo.  Girl Three is out of luck and gets killed by her stalker.  Guy Four is pissed that he didn't get any ammo.

Scenario C: The store prices ammunition at twice the usual price per round.  Guy One shows up, is disgusted by the prices, and goes home to his reloading bench to make his own.  He gets ammo.  Guy Two shows up, is disgusted by the prices, but doesn't have a reloading bench, so he buys one of the boxes.  He would have bought two, but with the higher prices can only afford one.  Girl Three shows up and buys the last box of ammunition.  She's fine with just one, because all she needs to stop her stalker is one.  (Practice is nice, but optional).

After she leaves, the store owner calls up his contact in NearbyForeignCountry and says "Hey, there's a run on ammo here.  Can you ship me some of your surplus pronto?  I'll pay 150% of the usual price because I can sell it for 200%."  Or maybe he calls up Guy One and offers to sell some of his reloaded ammunition.  Either way, he puts in more effort (or pays higher prices himself, or both) than usual to restock his shelves because he can make more money doing it than usual.

Girl Three shoots her stalker, and Guy Four gets his ammo, too.

That's why you shouldn't get mad about high ammo prices.  Doesn't mean you have to pay them, but don't get mad about them.  It's the free market in action.

Note that in Scenario C, supply rises to meet demand, and more people have ammunition than in scenario A or B.  Existing resources are allocated to meet the highest demand, and supply is increased, which will bring prices down eventually.  In scenario A and B, rather than increasing prices, there are shortages.  Shortages really suck when you are the one caught short.

Sure, it's a contrived scenario, but it's illustrating a basic economic principle.

(See Part One here.  Part One began as a comment on another blog).

This entry was published Wed May 29 09:10:16 CDT 2013 by TriggerFinger and last updated 2013-05-29 09:10:16.0. [Tweet]

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