Hello - Please help explain why: \"After natural disasters such as hurricanes, t

Question

Hello - Please help explain why:

"After natural disasters such as hurricanes, the prices of necessity goods such as bottled water, generators, milk, and so forth, in the areas hit by the hurricane tend to increase dramatically. Many consumers and politicians have termed these increases “price gouging,” as they insinuate that suppliers are taking advantage of consumers when they are most vulnerable. Governments have even gone so far as to make price gouging illegal, saying in many places that it is illegal to charge any price significantly higher than “pre-hurricane prices.”

From an economic standpoint, are these laws that prohibit price gouging efficient?

What would happen if these laws were repealed and prices were allowed to increase?

Explanation / Answer

Prices rise dramatically because the supply of goods to that area gets affected. On the other hand demand rises as people loose their own goods and also them and more o provide for future use(because supply is short people tend to have more goods with them). No the laws are not efficient as it restricts incentive to increase supply and there is black marketing at even higher prices than would be without laws. If prices were allowed to rise supply will increase and demand will fall resulting in new short run equilibrium where supply is equal to demand.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.