AUSTRIAN ECONOMICS ADDICT

Less will be sold at a higher price than a lower price. The first part of the law of supply and demand makes perfect sense: do you cut back on the amount of a good or service purchased if the price gets too high? The second part of this law, more is supplied at a higher price than a lower price, also makes perfect sense; ask yourself: would you supply more labor at your normal wage or double your wage if asked to work overtime. The reality of supply and demand is always in play, even if Government tries to circumvent this economic law.

In this article, The Boom In Smuggling To Avoid Cigarette Taxes, by Jonathan Berr, at cbsnews.com, even though the State of NY has tried to raise the price on cigarettes, through taxes, to a level that would discourage the demand for cigarettes, it hasn’t worked, because the second part of the law, more will be supplied at a higher price, is also at work. As long as there is a demand for cigarettes, suppliers will fill that demand as long as the cost of supplying the product is lower than the price they receive in exchange, even if cigarettes are smuggled in via a black market. People will buy on the black market if they decide the cost of getting caught plus the lower price of the cigarettes is less then the higher price of the legal cigarettes. The sellers of the black market cigarettes could probably sell at a much lower price but they have to factor in the cost of getting caught into the prices they are charging. Supply and demand sets the black market price just as it sets the price in a free market hampered by taxes and regulation.

Government can’t stop activities that people want to engage in like prostitution or drug use. Government couldn’t stop the use or production of alcohol during the prohibition era. Eventually the 21st amendment had to be passed repealing the 18th amendment which prohibited the use of alcohol. At some point the question has to be asked, is the cost of prohibition greater than the cost of allowing people to freely engage in the prohibited activity? In the case of the Government trying to discourage an activity by raising the price through taxation, the point is reached where the price gets high enough that the black market supplies a portion of the product, and in the case of cigarette sales in NY, over half.

Economic forces are always trying to correct Government interventions into the market. The Fed created tech, housing, and present financial bubbles, the failed Obamacare roll out, fracking, failed green energy companies like Solyndra, and cigarette smuggling in NY are all examples of economic forces thwarting central planners plans. As long as the means needed to supply mans limitless ends are scarce, economic forces will reign over Government attempts to create abundance by decree.

Related Article – The Underground Economy In One Page, by Danny G. Leroy, at mises.org.

Related Article – Healthy Hunger-Free Kids Act, Doesn’t Work As Planners Planned, by austrianaddict.com.

Related Article – The Reality Of Obamacare, by austrianaddict.com.

This entry was posted on March 26, 2014 at 1:58 am and is filed under Econ. 101. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Black Markets, Economic Forces, Government Prohibition, Limitless Ends, NY State Cigarette Tax, Scarce Means, Smuggling, Supply and demand, Thwarting Central Planners Plans