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May 08

Why You Will Pay Me $20 for Bottled Water

Why You Will Pay Me $20 for Bottled Water

J. A. Gedra

On April 13, 2014, I and half of the city of Louisville visited the Louisville Zoo. Normally, half of the metropolis is not simultaneously moved to visit the zoo, but today was different. What made it different? It was Earth Day. Do not get the wrong idea; the throngs of people were not there to celebrate environmentalism, they were there because subsidies distorted supply and demand, which resulted in utter chaos.

Like all subsidies, people received the benefits before the horrible consequences kicked in. General admission to the Louisville Zoo is usually $16, but on Earth Day, Louisville Gas & Electric (LG&E) and Kentucky Utilities (KU) provided a subsidy to the cost of admission. Instead of the customer paying $16, the customer paid $3 and LG&E and KU paid the remaining $13. This resulted in LG&E and KU customers paying more for their electricity, and half of the city of Louisville entering the zoo after paying $3.

To most people, an 80% decrease in the entrance fee seems like a great reason to attend, but why does it lead people to act? Supply and demand is why. The demand, desire to go to the zoo, is relatively high in the spring when the weather is nice, but not everyone attends the zoo, because the cost of the ticket limits the number of people who will purchase a ticket. When the price of admission is dramatically decreased, because of an artificial reduction in cost (i.e. the $13 subsidy), people flock to the zoo to observe birds, because the demand has not changed.

The result of this influx of humanity was anarchy. The zoo became a zoo with so many people. Pathways resembled rush hour with traffic coming to a standstill. There were many accidents as strollers repeatedly ran into your shins and adults would run over children who darted out in front of them. Tempers flared as mothers pushed their weight around to make sure that their little cub saw the bears.

Such stress made one want to relax with a nice cool beverage, but unfortunately this was not possible. The zoo staff did not anticipate that a dramatic increase in patrons would increase the demand for drinks. If they had, they could have increased the supply of drinks and made a larger profit. Instead, they started the day with an insufficient supply that the hordes quickly consumed, resulting in the zoo turning into a desert. All pop machines were out; most were not even plugged in. All of the concession lines had at least 25 to 50 people in line. The situation became so dire that one woman collapsed and required emergency medical services.

With so much pent up demand, people would gladly pay a fortune for a cold drink, which is why zoo patrons will be buying bottled water from me for $20 next Earth Day at the Louisville zoo. When the demand is this high, due to a limited supply, entrepreneurs can easily step in and make a profit.

The moral of the story is when the cost of a product is artificially decreased with a subsidy, shortages will occur if the supply is not increased. This is why the zoo had such long lines for drinks and Venezuela has been running out of toilet paper.

kitty cat zoo

 

 

 

 

 

 

 

 

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