The country of Venezuela has found themselves in a sticky situation. After the government placed a price ceiling on toilet paper (thinking it would help make it more affordable for all) Venezuela has found itself deep in a toilet paper shortage. The government induced price ceiling left producers of toilet paper in Venezuela no incentive to produce at the lower price. Even after limiting purchases to 12 rolls a customer, and importing 50,000 rolls from abroad, citizens of Venezuela are struggling to find toilet paper--a good in high demand! Lines extend far beyond stores, and there is even an app that can help people find stores with toilet paper.
The government's new solution to the problem (after importing didn't seem to work) is to take control of the production of toilet paper. They have recently taken over one of the largest the toilet paper factories. Many citizens are upset seeing that it was the government who got them in the mess in the first place. The government seeks to blame private companies for charging prices too high, but this begs the question, is it really the role of government to control the production of a good like toilet paper? Free market Economists like Friedman would argue that all might be better off if the production of toilet paper was left to the private market. Considering the government's track record, this may be something better left to the private market and not a role of the government.
1 comment:
Very interesting post! To add to this: the main issue with the Government's accusation that it was merely trying to compensate for excessive prices imposed by industry, is that toilet paper can hardly be considered an industry with naturally high barriers to entry. Unlike natural/technical monopolies, toilet paper production can't reasonably be expected to require large amounts of infrastructure up front. This then begs the question as to why prices were in fact so high (if indeed they actually were). If prices were prohibitively high, and toilet paper production is not a technical monopolistic industry, then it stands to reason that state intervention was to blame for the high prices in addition to the shortages caused by the price ceilings. By this reasoning, some government imposed barrier to entry, either excessive regulation, corruption or the like, prevented the price of toilet paper from reaching the competitive equilibrium. If this was not the case, and the price of toilet paper was indeed at the competitive equilibrium, then the price was not excessive, and the price ceilings were completely unjustified.
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