Textbooks and the free market.
Tuesday, December 18th, 2007Whatever you think of the “magic of the free market”, there are a few situations in which it indisputably breaks down (or would break down) if left entirely to its own devices. Mail delivery to Gnome, Alaska. Medical care for indigents. College textbook prices.
When it comes to both the availability and the pricing of a product, the Law of Supply and Demand works best (from the customer’s perspective) when (a) those creating the demand are also the ones paying the price, (b) when the demand is elastic — that is, when an unreasonable increase in price leads to a sharp drop in demand and thus in the supplier’s profits, and (c) the profit potential is sufficient to motivate a supplier to provide, or continue providing, an essential product or service even when the market is small. (more…)