You stand, parched, hungry, and tired, as the line inches forward. Just as you begin to pray once again for something to be left—even just some crackers and water—the line ahead begins to disperse. “They’re all out,” a man says ahead of you, “they’re out of everything.” That can’t be right. For hours, you’ve seen people walk past you, shopping carts filled to the brim with cases of water, food, electrical supplies, and who knows what else. Surely, the store can’t be out of everything. But when price ceilings are in effect, situations just like this one play out across the country during times of dire need.
Price gouging is defined as “raising prices on certain kinds of goods to an unfair or excessively high level during an emergency.” Price gouging is illegal in 35 states, and most people believe it to be immoral and a policy that unfairly takes advantage of people in need. But is price gouging really all that unfair? Economists don’t believe so. In fact, laws against price gouging discourage competition and often result in market failure.
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Price gouging prevents market failure by ensuring that resources are allocated to those who need it most. When businesses raise prices during a state of emergency, they aren’t simply looking for a profit or hoping to take advantage of consumers. Rather, these businesses are adapting to the changes in supply and demand that they see in the market. When businesses engage in price gouging by raising prices, they are adapting to a high demand for finite resources. In a Capitalistic market, prices are used to allocate resources—price gouging ensures that resources are allocated to those who need the scarce resource the
Price discrimination is a significant and influential practice on the market in the modern economic world. It aids in a firm's profit maximization scheme, it allows certain consumers with more scarce resources the opportunity to purchase goods or services that would otherwise be usable, and it aids firms in balancing what is and what is not sold. Price discrimination is an effective means by which a firm can sell a higher quantity of goods, make a higher profit margin on the goods it sells, and builds a broader consumer base due to differing price elasticity of demand for given goods and services. Price discrimination ultimately equalizes price and value for both the consumer and the firm, creating a more ideal situation for both entities in terms of preference and opportunity cost.
These next paragraphs, therefore, will look at the way the two views are wrong and show that the act is morally praiseworthy. Price gouging has been seen as objectively coercive. However, price gouging in most cases has three features that seem to weaken the concerns of price coercion on the understanding of that notion. First, in price gouging, most purchasers consent to the exchange. Second, the act does not involve deception, irrationality or the lack of information.
In an efficient market, price increase brought about by a crisis of otherwise is natural. Due to surge in demand, people cannot get the same product at the original price during shortage. Without an increase in the price, the shortage will become worse as sellers will not have the incentive to avail more products in the market. A Price increase gives sellers an incentive to provide more of a product in the product and price goes down to an economically efficient price. Because price gouging is banned in most jurisdictions, rationing the product is done through bribing and first-come-first-served basis. Price gouging is opposed because in a crisis, supply in the short run is perfectly inelastic as shown below.