How does this relate to the theories from the chapter?
This chapter focuses on supply and demand. In Venezuela, the government passed a law to price selling low so that people from lower-class could afford them. But the equilibrium price was higher than the selling price. So, it created a large shortage.
Now consider a different case. After Hurricane Katrina speculators brought in bottled water, but charged quite a lot for it. What might have happened had price controls been imposed? Where does the concept of fairness fit into this theory?
In the case of hurricane Katrina where water was brought in and sold at a higher price. The reason could have been because there was a higher demand than supply, thus, causing the price to be elevated. If the government had controlled the selling price.
How is are the two disaster situations different? Will supply and demand be affected in the same way? Why or why not? What information is conveyed by the price in both situations? Is it accurate? How do prices tell people to behave?
These situations are different because one affects the nation’s economy caused by the government, while the other just a region caused by a natural disaster. Supply and demand are the same because they are necessary for survival. If Venezuela’s government changed the price control, then, there would be a shift in supply and demand.
Netsy's Thoughts 