Thursday, April 16, 2020

Why is the response to increase in demand for PPE slow in the USA?

One reason to encourage firms to raise prices when demand surges is to allow producers to accept the higher costs that they incur to ramp up production (https://marginalrevolution.com/marginalrevolution/2020/04/ppe-shortages-and-the-failure-to-increase-prices.html). The post also points out that the long-run response by producers to higher prices is > the short-run prices: over time either prices will decrease or consumers will purchase even more.

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