Rising demand hits static supply: what shall we do?


So here's a little puzzler. Imagine that we had some good or service that was in limited supply. And that then demand for that good or service rose. What could or should we do to deal with  this problem? For obviously some of those who desire that good or service are going to be disappointed given that we cannot increase supply. The obvious logical answer is that we should increase the price of that good or service. This will, in the way that rising prices tend to do, reduce demand for that good or service. Further, we also know that that limited supply will go to those who value it the most: we working this out by concluding that those willing to pay a higher price are those who do value something more highly.

Then we get the Mail:

What a rip off! Hotel room prices in Glasgow soar 158 PER CENT to up to £448 a night as city prepares to host Commonwealth Games

A night in a hotel will now cost an average of £344 for the Games period A year ago prices were on average of £78 per room The most expensive night - Sunday 27 July - will cost an average of £448

That's the house magazine of the angrier part of Middle England complaining about the solution to that difficult problem that, well, when a sporting event is going on more people want to stay in a city which has, in the short term at least, a static supply of hotel rooms.

No wonder we all have problems getting economically rational political policies put in place, eh?