The Big Ripoff

While reading a recent newspaper article I was struck by how economically naive a large part of the population is. The article was in reference to recent high gas prices. After rising to record high prices, oil finally started to drop. It was a great relief to drivers, but there was a week or so delay between the drop in oil prices and drops at the pump. Apparently, according to the article, there were some petrol stations which lowered their prices slower than others.

So far so good; sounds like different areas of Sydney have slightly different factors of competition and availability which makes such large swings in prices noticeably uneven. Pretty simple supply/demand type stuff. What bothered me about the article is the way it referred to these higher prices with sentences such as “motorists being ripped off by major petrol companies,” “many motorists were still being ripped off,” and “motorists would continue to be ripped off.” This phraseology betrays a complete misunderstanding of the operation of the market.

It’s one thing to state that the high prices are a “rip off” if there are lower prices elsewhere. This colloquial use of the term simply indicates that a smart shopper should look elsewhere. But that’s not the way it was used; it was used in the sense that denotes a fraud or a swindle. I’m assuming that these “ripped off” motorists were fully aware of the price when they entered the stations, the price that was posted on signs and pumps was the price that they paid, and no one threatened to harm them if they didn’t purchase. So wherein lies the rip off?

Nowhere, that’s where. Those higher prices were not ripping off consumers any more than the higher prices of designer handbags rip off fashion consumers. People paid higher prices because they were not willing to find or patronise stations with lower prices, plain and simple. The owners offered a good a certain price and people chose to buy of their own free will.

Now, there’s a whole other argument buried in there about free competition and government intervention in the petrol market, but we’ll leave that for another day (I’m sure you can guess where I stand on that issue). But the end result of this is that I’m now slightly more saddened about the state of the world. When simple economic concepts are complete voodoo to supposedly educated people like professional journalists it doesn’t bode well for the future of the nation, or the world.