When I was quite young ... around 8 years old ... I remember by mother being quite annoyed because tomatoes she had just bought at the local greengrocer were more expensive than she had planned. Most of the time, her strategy was to wait to buy fruit and vegetables from this greengrocer towards the end of the day when the prices would go down as he tried to sell off all the excess produce before the close of business. On this occasion the prices had not gone down, but had gone up. The proprieter explained to my mother that on this day there was no surplus and therefore no need to put the price down to move the merchandise ... in fact shortage meant he could raise the prices. Pure econonomic theory being put into practice!

I think this was perhaps my first lesson in economics.

Price Controls are Difficult

I was running a fairly large factory in the USA in the early 1970s when OPEC was able to raise the price of a barrel of oil from $3.50 to $13.50 a barrel ... the so-called 'oil-shock' that was a major disruption for the global economy, and especially for the United States. The administration of President Nixon was faced with massive cost-push inflation and outrage over the high prices that resulted. The government tried to solve the problem with government imposed price controls, and I recall President Nixon triumphantly announcing that the prices would be 30% lower as a result of the controls. At the time my company had a contract to buy 50,000 lbs of bronxe every week from a major US smelter. We had been doing business with this company for a long time ... like perhaps 30 years ... but then suddenly this supplier had no stock to ship us. The price we were paying under our contract would have been 50 cents/lb, but now with the new government imposed price controls we were going to pay 35 cents/lb. Good ... except there was nothing to buy. Surprise surprise, our supplier had chosen to sell their product on the world market at around 50 cents/lb rather than to us ... at a loss ... for the government's price. I had a foundry to run, and we needed bronze and we needed it in just a few days or we would have to shut down. Now it was my turn to go into world markets, and I was able to get the bronze in Europe at the world price. But then I had to fly the bronze back into the USA to keep my operation running. What was meant to be a 35% reduction in my costs according to the government, turned out to be a true delivered cost of around $1.50, an increase of 200%! The lesson from this story is to be very careful when messing with markets!