Question

Is price gouging evil, especially during a state of emergency?

Please use the knowledge of the price ceiling to talk about it.

Answer 1

Answer: Price Gouging: It happens in the market when a seller increases the prices of goods and services at such a level that is reasonably higher. It happens with the basic necessity of goods after a state of emergency due to demand or supply shock.

Price Ceiling: it is one of the ways of price rationing adopted by the govt. The govt. can fix the maximum permissible price. this is called the price ceiling. The price ceiling makes it illegal for the sellers to charge more than the stipulated price. It is a legal upper limit on the price of a particular good or service. It protects the consumer's interest by not allowing the suppliers to cross the prescribed unit.

The price ceiling may be set in the following ways:

• equal to the equilibrium price: if the maximum price is set equal to the equilibrium price, it will have no effect on prevailing price or quantity. the market will remain unaffected.
• Above equilibrium price: it will also have no effect on the market. at higher price, the demand will fall and supply rise, pushing the price back to the equilibrium level.
• Below Equilibrium price: It will affect the market, at this price the quantity that the buyer is likely to purchase is greater than the quantity that the sellers are willing to supply. there will be excess demand or shortage of goods.

it is generally fixed below the equilibrium price in case of essential commodities so that poor people can afford it.

The possible effects of price ceiling are:

1. Beneficial for poor consumers: it helps in emergency situation to the poorer section of the society to get the commodities which are in short supply. as without ceiling, they are not able to buy goods at higher prices.
2. Black marketing: It is the situation in which there is illegal sale of goods at prices beyond their ceiling levels it occurs due to excess demand for the goods at the ceiling level. In order to curb this, it is the duty of the govt. to go for penalties for this type of seller, enforce the law against black marketing.