For the full article, please read it HERE
Minds on.
To what extent does this problem illustrate the meaning of Economics?.
Should the respective cities have a right to price discriminate?
How does this problem illustrate opportunity cost, scarcity and choice?
What rationing system is at play? Free market versus centrally planned economy!!
As the various municipalities move into phase 3 of their opening, the reaction of Premier Ford to the hike in parking rates of Barrie and Orillia raises an interesting dilemma. Is it in fact price gouging or is it good business in response to the occurrence of scarcity...our wants, in this case the desire for parking spots are greater than the parking spots available. This scarcity results in the need to make choices. The rationing system is based on the consumers willingness to pay, something that the Premier obviously disagrees with. Any maybe rightly so...are these cities acting like pricing cartels?
Share your thoughts.
If you are a victim of what you think is price gouging, please report it below.
https://www.ontario.ca/form/report-price-gouging-related-covid-19
Certainly parking will always be a rivalrous and excludable service - land is simply scarce in places of high demand. This example shows the standard relationship of supply and demand of parking, as the government would like to reduce supply during the pandemic. Economics revolves around the distribution of goods and services influencing the choices of consumers, shown as the government jacks up prices to compensate for the scarcity of parking.
ReplyDeleteThe city has legal grounds to price discriminate based on region, but it is not a nice move especially when the financial situation is tough. If the motive was truly about reducing social gatherings, why not reduce parking availability with greater enforcement? Tourists are mostly unaware of the $50/day rate, so the hike increase does not deter people from leaving their house - they will still go to Barrie, only to be sour once they arrive. It's not a good look for the city as it seems like the government is trying to profit off of tourists. As long as the government/corporations do not price discriminate against gender, race, religion, etc, it should be legal - but it does not always look good..
I recently travelled to Port Perry with my family - public parking was free along the lakefront.
Kevin..is it fair to say that they are jacking up the prices? Parking spots are a source of revenue for the city and to the extent that social distancing reduces the demand...will it not have severe consequences on the respective city's ability to provide the quantum and quality of normal service'?
DeleteSimilarly, by greater enforcement, do you mean hire more staff? Have staff work longer hours? If affirmative, will they work for free?
I also wonder how difficult it is to secure parking....if it can be argued that parking spots are in fact not 'scarce'?
I also wonder about information asymmetry and whether or not it is applicable. If I leave for Barrie to spend time at the beach and is confronted with all day parking for $50.00...I may well see this as the deal of the week.
To say that the city is profiting off tourist, despite the optics, is not necessarily a new thing...Have you ever had to find parking downtown for a Raptors play-off game....not necessarily a like for like scenario...but one where suppliers are responding to a new reality.
Maybe Port Perry officials should smell the coffee and respond !!!
Thoughts??
The thorny debate of price gouging almost always presents itself during natural disasters, and this article is a perfect testament to that fact. The problem of scarcity represented in this dilemma reflects a central dogma of Economics: when resources are scarce from stunted supply or spiked demand, it is acceptable in a market economy to raise the price of essential goods to efficiently allocate resources where they are most needed. In other words, the increased price discourages hoarding and identifies those most in need because of its high opportunity cost. The problem arises when such price increases become 'unreasonable' and immorally discriminate against lower-income individuals.
ReplyDeleteThe fine line between supply and demand and immoral price gouging, in my opinion, depends on the type of scarcity and type of good. First and foremost, the both the supply and demand for parking lots has presumably remained the same since the pandemic; the only difference is a new negative externality of consumption where the social cost of a filled parking lot is greater than the private cost due to risks of COVID-19 spread. In this case, to function at the socially optimal level, cities can choose to either reduce the demand of the good through price increases or limit the supply of the good by placing 'no parking' signs to limit parking spaces to eliminate the dead weight loss. I believe the type of good should determine whether cities raise prices or limit supply. If the good is an essential product that is extremely price inelastic and insensitive to price changes, such as food or medication, the city is morally and legally obligated to ban price gouging. On the other hand, if a lack of the good does not significantly damage consumers' quality of life, such as limited parking spaces, I believe the city is morally free to increase prices. On a positive note, these price increases often refrain from being overtly 'unreasonable' because businesses and cities alike are policed by public perception and media (just ask Premier Ford).
In all, the Mayor Lehman's choice to impose taxes is opportunistic in nature—as Kevin pointed out, there are more effective ways to limit parking spaces, such as 'no parking' signs—but the opportunistic nature of this price increase is understandably so, considering the plethora of losses incurred by the COVID-19. In all, the Mayor Lehman's choice to impose taxes is opportunistic in nature—as Kevin pointed out, there are more effective ways to limit parking spaces, such as 'no parking' signs—but the opportunistic nature of this price increase is understandably so, considering the plethora of losses incurred by the COVID-19. Therefore, in my opinion, the Mayor's actions are justified because they generate much-needed government revenue without imposing overtly immoral costs on consumers.
Grace...So you support Mayor Lehman...and think that the Premier was just milking a photo op. And that he should probably be keeping his opinions to himself. We live in a democratic society where people are free to have their thoughts and even voice them, as he has done.
DeleteI am actually going to drive up to Barrie tomorrow to see the mechanism at play...the discussion we had earlier as well as the thoughts that you and Kevin have shared via this medium, makes me wonder about what has happened to supply...so before I continue let me go see first hand.
Sounds like a plan!
DeleteGrace...by the efficient allocation of resources and the opportunistic nature of the price increase...I agree with you that the mayor is being smart in trying to solve the problem of over-consumption, maybe getting to the quantity where MSB=MSC. Taking advantage is the PED and increasing city/town revenue is also a great thing. Maybe he should be the premier?
DeleteSp what did I see on my visit to Orilia beach front...to begin with it is beautiful. The beach is not Negril white sand comparable, but hey beggars cannot be choosers.
While outdoors bbq's are not allowed at this time, it is a cool spot to spend the day.
In talking to the locals, weekends are quite busy but parking is available for all...
So what do we have? Maybe the price increase can be viewed as a tax bringing consumption closer to the optimal level?
Thoughts?
As Ontario reopens, several municipalities have begun to experience an influx of tourists and with it, overcrowding. This issue ties in with the very foundation of economics and the decisions that need to be made when allocating scarce resources. On one hand, the reduction of demand from Mayor Lehman’s decision to raise prices will likely minimize the negative externality caused by the increase in Covid-19 cases associated with overcrowding. However, in the face of a pandemic and an impending economic recession, it is understandable that many people would view this as predatory — especially with a 250% price increase. With such a significant jump in prices, the line between price gouging and competitive pricing can be a difficult one to draw. Despite this, it should be noted that the majority of the population impacted are tourists. Waterfront parking is certainly not a necessity and does not fall under Ontario’s Emergency Management and Civil Protection Act, which regulates pricing of masks, disinfecting agents, and personal hygiene products. Cities do have the right to vary parking prices based on region and street, as is usually the case with tourist populated areas. Should tourists and visitors decide that the opportunity cost of visiting Barrie’s waterfront is too high, then they have the choice to visit another municipality — such are the principles of the free market.
ReplyDeleteAs a side note, I suspect that visitor parking spots are in fact, not scarce, and that there is no current shortage in supply… or at least not any more than previous years. Rather, this is likely a form of government intervention designed to promote social distancing measures.
Bonnie...I guess the overcrowding caused by changes to substitute goods might theoretically explain the increases in the demand for leisure waterfront consumption.
DeleteMany places of leisure are closed via government edict, so people flock to the next best. This is consistent with the theory of demand.
You mention the increased price will lead to a reduction in demand...I wonder if this is how the theory operates?
Is it possible that the number of spaces being consumed during covid is such that (MPB)greater than the MSB. Does this make it a negative externality of consumption? This would loop into the majority of your explanation and conclusion...thanks for sharing.
One of the fundamental issues present in this article is the idea of scarcity; there is simply not enough parking spaces for everybody. The problem with scarcity can be linked directly to a key concept and fundamental meaning of Economics; when there is a lack of resources or a decrease in supply, is it considered ethical and morally correct to raise prices in order to efficiently allocate resources and achieve allocative efficiency. This rise in price can further be linked to the idea of opportunity costs. The opportunity cost will increase due to the rise in price and this forces consumers to make new choices; now, only those that desire or need the good the most will be able to acquire it.
ReplyDeleteI believe the distinction between a rise in price and discriminatory price gouging depends on the type of good that is being mentioned. Take for example parking spots. The supply, although not explicitly stated, has essentially decreased due to strict social distancing procedures that have been put in place in order to reduce the spread of Covid-19. The demand, however, has not changed much since the outbreak. In order to achieve a new equilibrium, the city has 2 choices; they can increase the supply or parking spots or decrease the demand for them. Increasing the number of parking spots is logistically very difficult and not very realistic; this leaves only one option, to lower the demand of parking spots, which can be done by increasing the price of parking spots, as seen in the article. In essence, I feel that if the good being mentioned is a non-essential good, such as parking spots, price gouging is acceptable as it does not severely impact the quality of a consumer's life. As well, price gouging can also increase the benefits to society; in this case, the spike in price for parking spots helps to lower the spread of Covid-19 among the community. However, if the good being targeted is an essential good, such as food or shelter, I believe that price gouging should not be allowed as the rise in prices will directly damage the wellbeing and the quality of life of consumers.
In conclusion, I think that Mayor Lehman's decision to increase the prices of parking spots is a radical move, but taking into consideration the effects and consequences of the Covid-19 pandemic, it is understandable the reasoning that went behind this decision. The Mayor’s choice, thus, is justified as it helps increase social benefit (Decreasing the spread of Covid-19) and aid the city in generating more government revenue, which took a large hit at the start of the pandemic.
Timothy.....Are there really not enough parking spaces for everyone or does this only apply during certain times of the day and on certain days? As economist, do you structure your explanation as to the price increase around 'morally ethical considerations'? What does this even mean?
DeleteWhy lose sight of how markets are supposed to operate? Maybe engage the signaling, rationing and incentive function ..in this regard you stay true to the theory.
If it is true that the city, being the provider of the parking spots has the power to influence both demand and supply of spots...why not explain how so? Do we say a price change influence the demand of a good itself or it influences the change in the quantity demanded? Are these important distinctions?
As an economist, it is very important to not only consider the economic consequences but also the effects on the people. As a result, it is extremely difficult to structure the explanation of a price increase around "morally ethical considerations," as there are no guidelines for this term. What some consider morally ethical, others may not; thus,the increase in the price for parking spots is a decision, that although may seem very radical, is for the better of the economy and the people. The government is now able to generate more revenue and the people are safer from the spread of Covid-19. Furthermore, parking spaces are only really limited during certain holidays or certain time periods. As a result, the price gouge is not a change that severely the quality of one's life.
DeleteAdding on, although the city is the provider of the parking spots, it does not mean that they have the power to influence the demand of these parking spots. At the end of the day, consumers have the choice to use these parking spots and if they do not want too, they can choose other alternatives such as nearby garages or parking at their cousin of friends house. It is important here to note the difference between a change in demand and a change in quantity demanded as there is a key distinction. A change in a demand is a change in a customers willingness to buy a product while a change in quantity demanded represents the amount of a good being purchased at a fixed price. In this case, there is a change in quantity demanded, which means that there is still a same amount of people who want the good, but only a few are willing to pay the price. This is an example of how a market works; an increase in price will lead to a movement along demand curve and the quantity demanded decreases.
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