What is wrong with price-gouging? Absolutely nothing? -
The Eclectic Econoclast
The Eclectic Econoclast gives a nice discussion on why economists do not view price gouging as a bad thing.
One of the things that can shift demand or supply is a disaster. A hurricane, a tsunami, a chemical spill which damages the local water supply.
All these examples create a shortage at the original price. If prices are allowed to adjust, then according to standard supply and analysis prices will rise to where quantity supplied and quantity demanded are back in balance.
Following Hurricane Hugo, the governor of South Carolina forbid price increases. This led to reported allocative inefficiencies, such as: drinkers desperate to keep their beer cold got ice, but mothers weren't able to find ice to preserve their families' food.
One puzzle is why businesses sometimes do not raise prices even in the absence of price gouging prohibitions. The Eclectic Economist's post points to Karen Selick's answer.
The Eclectic Econoclast
The Eclectic Econoclast gives a nice discussion on why economists do not view price gouging as a bad thing.
One of the things that can shift demand or supply is a disaster. A hurricane, a tsunami, a chemical spill which damages the local water supply.
All these examples create a shortage at the original price. If prices are allowed to adjust, then according to standard supply and analysis prices will rise to where quantity supplied and quantity demanded are back in balance.
Following Hurricane Hugo, the governor of South Carolina forbid price increases. This led to reported allocative inefficiencies, such as: drinkers desperate to keep their beer cold got ice, but mothers weren't able to find ice to preserve their families' food.
One puzzle is why businesses sometimes do not raise prices even in the absence of price gouging prohibitions. The Eclectic Economist's post points to Karen Selick's answer.
posted by John B. Chilton at 3/08/2005 07:25:00 AM
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