Toledo can’t drink its water. There’s an economics lesson there.
epa04339855 Diane Yost of Toledo, Ohio, loads bottled water into her cart at a Kroger Grocery store in Monroe, Michigan, USA, 03 August 2014, after the presence of the toxin microcystin in a northwestern Ohio water treatment plant was discovered, forcing a declaration of a state of emergency in Toledo, Ohio, and surrounding areas. According to officials, the toxin was produced by algae blooms in Lake Erie. It is estimated that 500,000 people are affected by a do not boil or drink order. EPA/JEFF KOWALSKY
Politicians in Toledo, Ohio, love to fight about what should be built in their city and where. Nine years ago, in the midst of a mayoral campaign, the big fight was over whether to build a Costco in a dying shopping center at the edge of a leafy university neighborhood. The store eventually was built; Saturday morning, lines of shoppers stretched through it. Everyone was there to buy bottled water. According to reports from residents, it sold out by late morning.
Government officials warned hundreds of thousands of people Saturday to not drink the water flowing from taps in Toledo and some surrounding areas. Tests show the water contains dangerous levels of chemicals, stemming from an algal bloom on Lake Erie. The governor has declared a state of emergency.
It was a poor choice of weekends for Josh Hendrickson to visit home.
Hendrickson is an assistant economics professor at the University of Mississippi. He was born and raised in Toledo and studied economics at the University of Toledo, near where that Costco is today. His parents live just across the Michigan border from the city. He went to see them for the weekend. On Saturday morning, he tweeted: “This is going to give me a good supply and demand example to discuss in class in the future.”
In a follow-up e-mail, Hendrickson outlined how Toledo residents have responded to the abrupt water shortage and how market pricing has not responded in turn, leading to the long lines — and by some reports, flaring shopper tensions — around the region. He wrote:
Since health officials made their announcement this morning, retailers have struggled to maintain supplies of bottled water. By 9 a.m. it was reported that all Kroger stores in Toledo had run out of bottled water. News reports have shown customers leaving the stores with 10 cases of bottled water or more. One customer reportedly bought so much water that their car was too heavy to drive home.
Most news stations are encouraging people not to buy more water than they need, but the major retailers haven’t adjusted their prices to the massive increase in demand. The one exception, however, has been gas stations. Some gas stations are reported via local newscasts to have been charging up to $28 for a case of water.
What is most interesting to me is that there seems to be more backlash towards the gas stations (at least through newscasts and social media) than at those individuals who are buying very large quantities of water. I find this interesting and ironic because the gas station is taking steps to move the market toward equilibrium which helps to get bottled water where it is needed most (to parents who need to mix water with baby formula, for example) whereas those buying excess amounts of water are making the problem worse.
Major retailers, no doubt, are choosing not to increase their prices to avoid this backlash. This means that they have chosen to allocate water through a first come, first serve system rather than through the typical price mechanism. While it is easy to see why people are upset at high prices for water, it is important to realize that even at “normal” market prices many people aren’t able to get water.
Of course, when stores raise prices in times of shortages, they’re often accused of “price gouging,” which is exactly what some Toledo news reporters promised, via social media, to be on the lookout for on Saturday.
Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
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