Question

Consider owners of roofing, nails, gasoline, food, etc outside the disaster area. In the case of Burma, consider owners of these goods in adjoining coutnries such as Thailand and Bangladesh.

When the flooding hits Burma but not Thailand or Bangladesh, large price differentials will be created between Burma and adjoining countries.

Large price differentials act as a signal to owners of goods telling them where their goods are most valuable.

Large price differentials create a personal incentive for owners of goods to reallocate their supply of goods from low to high valued areas. This is because reallocating will allow them to sell their goods at higher prices yielding profits for themselves.

The bigger the price differential the more likely owners of scarce goods will take extraordinary measures to overcome obstacles to moving scarce goods into disaster areas. Flooded roads, lack of electricity, additional flooding, etc. will be less likely to prevent movement of goods into the disaster area the high the price differential.

Preventing a large price differential from occuring by regulating prices would prevent hoarding.

Preventing a large price differential by regulating prices would make people in the disaster area better off by ameliorating the effects of the natural disaster.

When there are large unanticipated changes in demand or supply, government intervention is a better solution than the free market. The free market is good during normal times but extraordinary events mean only government can respond quickly and effectively.

Rather than handing out free food and other supplies in disaster areas, government could be just as effective in ameliorating the effects of a natural disaster if they handed out cash to people in the disaster ares.

Choose all that apply

Answer 1

1. When flood hits Burma but not Thailand or Bangladesh,large price differentials will be created between Burma and the adjoining countries. If there is a complete destruction of the entire country by the catastrophe, the demand for the goods such as food, nails, gasoline, roofing etc. will go up in Burma as the survives and government try to reconstruct the destroyed country. The sudden increase in demand and inadequate supply in the domestic market creates large price differences between the domestic market and the neighboring economies.
2. Large price differentials acts as a signal to owners of goods telling them where their goods are most valuable. The price is always a signal in the economy about the persisting demand supply conditions. A high price means the demand is not met by the current supply of goods.
3. Large price differentials creates personal incentive for owners of goods to reallocate their supply of goods from low to high valued areas. This is because reallocating will allow them sell their goods at higher prices yielding profits for themselves. High price is always considered as an opportunity because it makes avenues to make huge profits. So the high price differentials between the countries always attracts owners to reallocate their goods so that they can earn profits.
4. Preventing a large price differential from occuring by regulating prices would prevent hoarding. Regulating the prices for the supplies will prevent hoarding, because the owners could try to reduce the supply so that the prices will rise further.
5. Preventing a large price differential by regulating prices would make people in disaster area better off by ameliorating the effects of the natural disaster. The government intervention by regulating prices will help the people to overcome the after effects of disaster, otherwise they will be exploited.
6. When there are large unanticipated changes in demand or supply, government intervention is better solution than the free market. The free market is good during the normal times but extraordinary events mean only government can respond quickly and effectively. The role of government in such situations are highly important as a regulator.
7. Rather than handing out free food and other supplies in disaster areas, government could be just as effective in ameliorating the effects of a natural disaster if they handed out cash to people in disaster areas. It is better to compensate them with purchasing power rather than free food or free supplies so that they can utilize the purchasing power to meet their priorities.