Monday, October 06, 2008

Today's Lesson

I pulled into a gas station today where the price of regular unleaded was posted at $3.48. The sign on the pump read as follows: Only Premium. Two blocks away I bought gas for $3.56. They seemed to have plenty to go around. Why? Because prices work!

That most individuals are astonished when a single station (or even a handful) undervalues gas at a given point in time and, as a result, sells out too quickly points to how well the price mechanism works: we are so accustomed to entrepreneurial accuracy that miscalculation seems inconceivable.

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