4. After considering the situation of market power for my software and how it ch

Question

4.   After considering the situation of market power for my software and how it changed after the introduction of competitors, consider situations of natural disasters and how governments respond to shortages resulting from them.

a.   Read this article and comment on why anti-gouging laws can increase social welfare.

b.   In contrast, read this blog post and comment on why anti-gouging laws may not increase social welfare, or at least why they may lead to consequences which are unintended by the government.

c.   Which argument do you find more persuasive, and why? I.e., should governments continue to use anti-gouging laws to correct supposed market failures occurring after natural disasters?

Explanation / Answer

Legislature save consumers and remove dead weight loss in the society by controlling over pricing by monopolist.

They eliminate three dead weight loss associated with monopoly power of price gougers. With lower prices they increase consumer surplus. However price control creates excess demand at forced lower price.

Excess demand create shortages which necessitate waiting in long line for Cheap products. Also goods are distributed in ways that may not reflect the need of the buyer.

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