My friend, Scoop, writes that there is a desperate shortage of tampons in Japan following the Tsunami. But as I say to my students, "Shortage? At what price?"
If the prices of tampons rose, two things would happen:
- The quantity demanded would decline. That's right. Even though tampons are perceived as necessities, as the price rose, some people would find substitutes and others would change less often.
- The quantity supplied would increase. At high enough prices, it would pay entrepreneurs to fly in caseloads of tampons. In fact, it is likely that one thing keeping these entrepreneurs from doing so is the uncertainty about how many tampons will be shipped in as part of the relief effort, thus thwarting their own possible efforts.
Note: I'm not saying that shipping tampons to Japan as part of the relief effort would necessarily be a bad thing. I am, however, trying to point out that prices, and especially expected prices serve as a signal. In this case, the signal induces people to use less and supply more.
I should also point out that if tampons are shipped to Japan as part of the relief effort, there will have to be some rationing scheme in place. If prices are not used to ration the tampons, then some other rationing scheme will, of necessity, be in place. The criteria will likely be some combination of queuing, connections, and luck.