TEST: Selling Portable Generators

A test on the selling of generators:

At the time of the early aftermath of hurricane Katrina, two young men in their early twenties heard that there was a dire need for portable generators in the destruction zone.  These two men purchased two generators, loaded them into the back of a pickup truck, and drove down to the area.  They sold the generators for $5,000.00 each.

generator

 

Is that a good thing, or a bad thing?

Question

 

Most people have a knee jerk reaction to this that is something like:

“That is TERRIBLE!  They are just taking advantage of people when they are in their greatest need.   Jerks!”

But here is the thing:  They found a need.  They filled the need.  They were very well compensated for their efforts.  Nobody forced the buyers to purchase or pay that price.  And most importantly, two folks, and likely those around them, now had access to generated power that was not available to them before.

It reminds me of when I was a young boy, and I saw a man talking on a phone in the back seat of what was clearly a VERY expensive car.  I told my mom about it, excited that I saw someone talking on a PHONE in the back of a car!  How on earth did he get that?  Every phone at the time was tied to a line, and you could get a REALLY long cord that might let you get 20 feet from the base, but nobody had a phone in their car.  Well, almost nobody.  It was about 1972.

Now, how much do you think that man paid to have that phone in his car?  I would guess anywhere from $5,000 to $20,000 per year in 1972 dollars.  So, was that not fair?  Should we have kept him from having a phone because nobody else had one?

But then something amazing happens…The technology improves.  Folks compete.  The cost comes down.  And today, some grade school kids have phones, and most Junior High kids have phones.  And those kids’ phones have GPS, mapping, texting, any number of video games, and even stock trading.

That man back in 1972?  His phone allowed him to talk to people. It didn’t even have a clock.

Similarly, those young men made a great profit on their generators, but others heard about it, and the competition was on.  You can bet that folks were very willing to put in the effort to meet that need, and at a lower price.  So, like the phone example, some  early buyers paid a pretty high price, and the costs came down, and the demand was met, and the market balanced out.

Free markets are a GOOD thing.  It is up to the buyer and seller to determine the value of a product or service.  It is not up to us unless we are a party to the transaction, and it is certainly not up to the government.  Because all that would have happened if we followed our knee jerk reaction and made it illegal to “take advantage of people,” is that the two folks that were willing to pay the high price would not have had their generators, and the market for generators would have been slowed down or stopped completely, so folks would have gone without the generated electricity for a longer period of time.  All because someone who was not a party to the transaction decided that they should be the transaction’s ultimate arbiter.

Free enterprise rocks.

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