How the Free Market Distributes Scarce Mask and Transportation During Corona

I am currently in Europe and was caught here when corona-panic broke out. Countries like Italy, Spain, Czechia and Ukraine announced to close their borders within 2 days or so. There was a huge outcry when the airlines increased the airfare 5-fold. But being an Austrian amateur economist, I understood the wisdom in this seemingly Draconian measure.

Essentially, the free market responds to the resource shortage problem. As the governments banned flights, the remaining ones become highly sought-after. Whenever demand increases, so do prices. Those people who are in dire need of returning home would pay the airfare. Those who will not, find other means of traveling home such as railway, bus or car. Or simply, they stay where they are. In the end that a good thing because the scares resource — flights — has been optimally distributed.

A similar scenario played out with the sales of protective face masks, which might become the icon of this corona panic and the year 2020. People who had horded these masks sold them at 3 times the original purchase price in streets. You might call this price gouging but I call this optimal resource distribution and making a fair profit. 

You see, I had to travel in the bus during the corona scare. Without a mask this might be risky. So, I was glad a street vendor offered me such a valuable mask, and I was glad to have it even at the 3 times higher original purchase price. This trade made not only me happy but also the street vendor as he pocketed a nice profit. Win-win. 

The final example of market wisdom I witnessed during was the actions of the mini-bus drivers in Easter Europe. The fare of these minibuses is extremely low — less than 20 cents for one unlimited bus ride. This low bus fare means that the bus operators have a very small profit margin and cannot operate if conditions change. And the operational conditions did change when the Ukrainian government outlawed bus rides with more than 10 people. These mini busses normally hold 20 to 40 people. A lower number means the income is too low and thus, would force the bus operator to shut down its operation. 

Yet, brave bus operators defied the governmental prohibition and offered their important service to the public. There are those who claim this behavior is irresponsible but I call it brave. It is brave because the people got what they needed — transportation — and the bus drivers continued to make a living. And for those who believed in the merit of the governmental decree — restricting bus rides to a maximum of 10 people, could voluntarily not board such “overcrowded” busses. 

In summary, during the corona scare, the free market proved that it is capable of distributing scares resource optimally as shown for airfare, masks and bus rides.

Dirk Wagner

About Dirk Wagner

Dirk Wagner is owner of Tutorz LLC. He holds a M.S. degree in computer science and has 8 years of experience as software engineer and researcher. Dirk has tutored math and computer science to dozens of students in Southern California. You can find him on Google+, youtube, facebook, twitter, tumblr, quora and pinterest.
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