08S7C's Economics Blog

Comments : This cartoon depicts the misunderstanding between people/ suppliers , resulting in reckless buying and selling. The misinterpretation of information by someone may be passed down from one person to another, causing everyone to receive the wrong information. For example if someone hears that the price of rice will rise in the future and spreads it to other people, those people will further pass the unsupported information to more people. Everybody will then rush down to supermarkets to purchase large amount of rice to stock up for the future. This will cause a shortage as people buy more than what the suppliers can supply and thus price will increase so that suppliers will be willing to supply more.

For a supplier, if he receives the information that the price of rice will rise in the future, he will hold back his stocks, hoping to fetch a higher price for his stocks if he sells it later. When this information is passed down to other suppliers, the other suppliers will also hold back their stocks, resulting in a shortage and rise in price.

If suppliers receive the information that price of their good will drop in the future, they may direct their resources to produce another good that will bring them more revenue. This will cause a shortage of the first good, and an excess of the second good. This will therefore inflate the price of the first good and decrease the price of the second good since there are excessive amount of it in the market.

Cassandra