by Lyndon W

Created on: November 29, 2007

Social optimum. For the overall good of society before individuals and groups. It seems that government intervention has led to another case of economic inefficiency. The minimum price that has resulted from these agreement would be a price level higher than equilibrium, increasing supply of goods and damping demand for it - an overall effect of "shortage" of demand.

It is similar to a cartel, which has all along been acknowledged as the devil to market competitiveness. The immediate casualties are consumers. Consumers suffer from higher prices and reduced consumers' surplus, from which manufacturers and distributors gain at their expense.

The market should work as such that only the more competitive firms remain in the heat. That is, companies with the lowest costs ought to have the first right to stay before others. Resale price agreements creates a lax in which firms stay competitive in reducing costs if they know that they can still survive comfortably without doing so.

In fact, manufacturers and distributors may hardly have the reason to smile upon over the long run. A rise in economic profits urge an influx of other competitors into the market, coupled with the already declined demand, may worsen their situation ever than before. People in these sectors might even get laid off in the extreme case.

Nature runs best when left to run on its own. In filling a hole in the ground from digging another hole, it only serves to create more problems, somewhere else.

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