Wednesday, October 31, 2007

From the Comments

A reader asks:
would you elaborate on why you think it's a mistake to say that the demand for gambling services generally exceeds the supply? The supply of gambling services is constrained by law in most of the world...

Well, because in a well-functioning market, supply can never exceed demand, or vice versa. Both supply and demand are simply concepts that represent how much a group of people are willing to spend on a certain good or service at any given price, and how much a different group of people are willing to produce at a certain price.

Demand cannot "exceed" supply any more than people can buy goods that were never produced: we can only observe a higher price at which the market clears. An increase in demand - more people willing to buy at any or all prices - that is not matched by a similar movement in supply only results in a higher price, not excess demand.

There are of course times when this technically does happen, e.g. government imposes a binding price ceiling on some good (rental housing is a common one), but gambling is not one of these situations: government only limits where casinos can be built, not how many people can come through their doors, or what the house's margin on the games is going to be.

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