Question

1. Draw an hypothetical market for hand sanitizer in Florida prior to the pandemic. (Be sure to label your axes. Label your first demand curve D1 and your first supply curve S1. Label your initial equilibrium price P1 and initial equilibrium quantity Q1).

2. Show what has happened in the market for hand sanitizer around the stay-at-home order. Make sure you discuss what had happened, and give a graphical representation of the new situation by adding to the diagram in question 1. (Be sure to label all your axes, labelling D2, S2, P2, and Q2 to emphasize the post pandemic situation ).

3. The article from Tampa Bay Times reported that "Two 8-ounce bottles of Purell were being sold for $99. Six two-ounce bottles of sanitizer, travel sizes smaller that fit into your palm, were listed at $50." Assuming Governor Rick DeSantis called upon you for economic consultation based on economic theories as a community leader:

1. What would you recommend to the governor? To uphold the price gouging law or not to uphold it? Support your choice.
2. Who will loose if the law is upheld?
3. Is there a defined line between price increases and price gouging during this crisis in Florida? Who makes this distinction?

Answer 1

1. The hypothetical market for hand sanitizer in Florida prior to the pandemic is shown in figure where D1 and S1 are the initial demand and supply curves and the equilibrium price is P1 and equilibrium quantity is Q1.

2. With the breakout of the COVID-19 pendamic, the demand for hand sanitizer has increased and hence the demand curve shifts right to the D2. With increase in demand the supply couldnt be increased at once but all the firms have tried their best to supply more which increases the supply but less than the increase in demand and hence the equilibrium price increases from P1 to P2 and hence equilibrium quantity from Q1 to Q2. 3.The article from Tampa Bay Times reported that "Two 8-ounce bottles of Purell were being sold for $99. Six two-ounce bottles of sanitizer, travel sizes smaller that fit into your palm, were listed at $50." Assuming Governor Rick DeSantis called upon me for economic consultation based on economic theories as a community leader:

Considering the above situation, I would recommend the governor to uphold the price gauging law. I would support the law because it is very much possible that at the time of pendamic situation like the companies like Purell increases the price to earn extra profit which can also be seen from the above that the price of Purell sanitizer is higher than the other. So if the law is upheld these companies can't increase the price and hence they will loose.

There may be a defined line between price increase and price gauging in Florida during this crisis, because Following Hurricane Andrew in 1992, the State of Florida enacted a law that prohibits "price gouging" after a declared state of emergency. The Florida Office of the Attorney General investigates every allegation of price gouging and hence this is the authority who makes this distinction.