Supply & Demand

Prices

Prices vary based on the supply and demand of a product.

High Demand + Low Supply = High Price Low demand + High supply = Low Price Prices are a way to ration products and also to

inform suppliers which products to make, so that they can maximize their profits.

This profit motive guides them to produce the products that we want and not waste resources on products that we don’t want.

Other ways to ration products Need Based (Organ Transplant) Government Decree Waiting Lists (Public Housing) Combinations of above with prices

Efficiency

The price rationing method virtually guarantees the most efficient and productive use of scarce resources.

The US uses oil 2x’s as efficiently as China. We ration oil by prices (whoever pays the most gets the oil), they ration oil by government decree.

The price system is good for the environment.

Shortages A shortage is defined as a lack of a

product at the given price. Shortages are due to imposed price

controls, not the scarity of the product. Examples; Blood, Drinking Water,

Organs for transplantation, Gasoline after a hurricane.

The drought caused the water scarcity, the price control caused the shortage.

Water Shortage

If the price of water was allowed to rise, people would bring water to this area so that they could make a profit.

As more people rush water to this area, competition will lower the price of water.

Price set at Zero

Some things, like livers for transplant, have their price set at zero. This guarantees a shortage.

Most umbilical cord blood (contains stem cells) is wasted because it cannot be legally bought and sold.

True statements

Competition is the absence of oppression.

All voluntary trades benefit all parties.

A man has two shirts and no shoes. A woman has two pairs of shoes and no shirt. They trade both are better off.

Misleading statements

Wealth is not distributed evenly among the nations of the earth.

Free markets yes, brutal competition no.

Fair trade Level playing field Outsourcing is bad for America

Wealth of Nations Mercantilism states that a country that

exports more than it imports will get richer. A country that imports more than it exports will get poorer.

Tariffs & Quotas are based on this belief.

Trade will balance itself over time. Who would sell to someone who isn’t paying his bills ?

Capitalism vs Socialism

Private ownership vs Public ownership Creation of wealth vs Distribution of

wealth Forced transfer of wealth always

destroys wealth Countries that follow Capitalism get

richer Countries that follow Socialism get

poorer (or not as rich as they would have been)

Capitalism

Private Property Free Trade Low Taxes Light Regulation

Socialism

Public Ownership Restricted Trade High Taxes Heavy Regulation

Private vs Public ownership Privately owned things tend to

used more efficiently and cared for better.

Publically owned things tend to be abused for short term gain and have neglected care.

Free Trade

A voluntary free trade benefits both traders. If the trade was not beneficial to all involved parties, then they would simply keep what they already had.

Countries do not trade with each other. People & companies within those countries trade with each other.

What is beneficial to the parts, must be beneficial to the whole.

Taxes

A Tax is a forced transfer of wealth and will lessen the incentive to do what is taxed.

If we tax work, we get less work If we tax smoking, we get less smoking Fair tax- a national sales tax to replace

income tax ,

Migration

Throughout history people have always moved from the most Socialist countries to the most Capitalist countries. The Berlin wall was to keep the East Germans in, not the West Germans out.