The Story of the Wood Guy: A Tale of Supply & Demand
The latest Seattle storm raised all sorts of havoc around the area. Most of us viewed the situation as one to endure, and to get through. Some people, however, saw the situation as an economic opportunity.
On a street near where I live, a man was selling firewood from his truck while parked off to the side of the road. I have seen him set up shop here for as long as I’ve lived in the neighborhood, at least 12 years. I’ve been a regular customer for much of that time.
Usually, I’ll stop by to pick up some firewood, filling up the trunk of my car. It’s not terribly big, but since I don’t use my fireplace all that often, it usually takes care of things for most of the winter. Occasionally, when I’ve got the Wood Guy at the end of the day, he’ll deliver a larger amount to my home. I mention these details because I’ve always thought that I had a relationship with Wood Guy.
After the stormed caused massive power outages, the Wood Guy was back in his usual spot selling his firewood. He had lots of customers! People were lined up for a block or two as they waited to buy firewood to heat their homes. I was happy for Wood Guy, happy that he was safe and survived the storm and happy that he was still in business.
Although I still had a fair amount of firewood in my basement, I was worried that the power outage might continue longer than expected, so I thought I’d stop by and get some more firewood for myself. A precautionary buy, if you will, not desperation.
But then I got to the front of the line.
The Wood Guy has raised his prices! By a lot! Seizing the economic principle of supply and demand, Wood Guy knew that he now had a hot commodity. People were without power, needed firewood to heat their homes, and he decided to make the most of the opportunity. The price of firewood had gone up over 500%! I didn’t make the purchase. There were lots of people cold and desperate enough to pay the price, though. Not me!
I don’t begrudge the Wood Guy making a living. And I would a small increase in price, in recognition of what it might have taken to get out there on that particular day. But his choice to raise his price as high as he did cost him my business. Not just for the storm, but forever.
I choose to do business with individuals and companies who fairly price their goods and services, allowing both owners and employees to make a decent wage. I am wiling to pay a little more, drive a little further, and make a little more effort, to do business with good corporate citizens of the community. In my opinion, raising price to the extent that Wood Guy did, in the middle of a crippling storm, smacks of greed and carpet bagging rather than good citizenship.
In the scheme of things, Wood Guy won’t miss my business. Nor do any of the other business that I have chosen not to patronize over the years. I sleep better at night, however, knowing that I shop with a conscious. I hope that I always conduct myself in such a way as to be worthy of my own patronage.
What do you think? Good business or greed?
Photo credit: sky walker
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5 opinions for The Story of the Wood Guy: A Tale of Supply & Demand
Mark
Dec 21, 2006 at 2:47 pm
Considering that his higher prices kept people from purchasing the wood if they didn’t really need it (you), the raised prices may have helped keep wood available for people who needed it the most. I know it sounds like he is taking advantage of the storm, but in the end allowing the market to freely rise and fall is probably better for everyone.
I know there are laws against price gouging, but I think in most cases letting supply and demand work things out is preferable. In a perfect economy the price of goods would be continually fluctuating based on the demand–movie ticket prices would fluctuate based on the number of people who wanted to see the movie, dinner purchased at 4pm would be less expensive than when purchased at 6pm.
If a flood takes out the water supply of an area stores can keep prices the same and the first two people to come by will purchased every bottle of water available. Or they can raise the price and people will take fewer leaving more for other shoppers. On top of that, people from nearby states who realize that they can sell water for 10x what it costs them to purchase are likely to become entrepreneurs and start bringing in bottled water to sell–which will drive the price back down. If you don’t allow people to raise the price, you stifle the economic advantage of selling water that can quickly put an end to the shortage.
Mary Jo Manzanares
Dec 21, 2006 at 7:29 pm
Hi Mark,
In a perfect world all those things would happen. But they don’t. Which is why we don’t have true supply and demand economics. And I’m also not sure that the economic theory holds true in a catastrophe anyway.
I think what bothers me is that people who didn’t have money to buy fire wood may have died or become ill. Price gouging in this situation is just wrong in my book. It may not be illegal, but I’m very happy to take my business elsewhere.
I may have too much of a social conscious to be a true supply/demand economist.
Grigor
Dec 22, 2006 at 2:38 am
Mary, great post. Realy made me thinking.
We have to keep in mind that Wood Guy sels goods which are of life importance, especially if no other fuel is available. As you said, someone can die because he don’t have enough money. We should not compare this to selling cinema tickets. I wouldn’t say that this is too much of social consiousness. This kind of comunity awareness has to be a regulatory mechanism which should work in cases like these.
Mary Jo Manzanares
Dec 23, 2006 at 10:28 am
Hi Grigor,
Thanks for stopping by and leaving a comment. This whole situation has me thinking, too.
You raise a very good point — maybe my discomfort with the situation stems from the fact that the Wood Guy was selling a basic need (fuel for heat) rather than an optional item. I’ll have to think about that further.
Mark
Dec 26, 2006 at 9:18 pm
I think some people’s first instinct to increasing prices is to worry that some individuals will not have enough resources to pay for basic necessities. Most people would agree that a situation where rich people are able to survive and poor people die from lack of resources is not an equitable distribution of goods.
However, that is not the case here. Mary Jo lives in a neighborhood in Seattle where enough people have wood fire places for someone to make money selling wood on a regular basis. Fireplaces are luxury items because they are a very inefficient way to heat your house. They are also very expensive (in terms of turning dollars into heat) if you are buying wood on the corner. From this it seems reasonable to assume that the economic situation of Mary Jo’s neighborhood is not one where people are spending their entire income on food and basic shelter. I would guess that most people have cell phones, cable television, etc. In other words a good portion of their income is going toward items that are not basic necessities. If they feel that buying wood is a necessity there are plenty of other expenses they can eliminate to buy wood.
Also consider that the normal lowest temperature in Seattle during December is 37F. While this is cold, people aren’t going to be freezing to death and most everyone will be able to maintain a comfortable body temperature indoors with an extra layer of clothes and pulling another blanket from the closet. I live in an area where no one has heat, the houses are poorly insulated, and the night time temperature is around 20F. It is cold but once you learn how to dress it can be comfortable.
What actually happened allowed for a better distribution of fuel to those who needed it than would have occurred if wood prices remained unchanged.
Lets say there are 4 people in line (Mary Jo, Dave, Wilma, and Greg). There is only enough wood for 3 people. Mary Jo had enough wood for awhile. Dave, Wilma and Greg have no wood. Mary Jo figures maybe she should go ahead and get some more just in case.
If Mary Jo buys wood then it means that someone else who really needs the wood (by “needs” I mean that they don’t have any wood currently) doesn’t get it. If the price is high enough that Mary Jo decides not to buy wood, then it will be available for the three people who have no other fuel.
So by raising the price, the wood is distributed to the individuals who don’t have any instead of being sold to people who are hoarding it (I mean “hoarding” in a economic sense, not being derogatory to Mary Jo.)
If we consider the situation as a game, there are two possible outcomes. If the wood is sold for the same price, the seller’s outcome is neutral because he gets the same amount for the wood as normal. Mary Jo “wins”–she gets more wood to put in storage. Dave and Wilma “win” because they get wood as well. Greg “loses” because there is no wood left for him to buy.
If the wood is sold for 5 times the normal price, the seller “wins”–he makes more profit. Mary Jo’s outcome is neutral–she doesn’t really need the wood anyway. Dave, Wilma, and Greg all win because there is wood available for them to purchase.
The higher price results in a situation where there are no losers. Keeping the price the same causes some people to lose.
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