Question

There have been frequent instances of price gouging following natural disasters. discuss what is meant by price gouging and how it has occurred in response to the covid-19 pandemic, the arguments in favor of and in opposition to regulating price gouging, and under which circumstances, if any, you think there should be rules against price gouging.

Answer 1

It is true that there have been frequent instances of 'Price Gouging' post Natural Disasters. Now, the question is 'What is Price Gouging'?

Price Gouging refers to a situation when the sellers of various goods and services start selling the goods and services at quite a higher price as compared to the normal or the reasonable price of that particular good or service. We can say that 'Price Gouging' is usually a consequence of a supply shock or a demand shock. An example of Price Gouging is simply the increase in the prices of basic goods post natural disasters.

Price Gouging during Covid 19 Pandemic

Price Gouging has widely been observed during the covid 19 pandemic. During this pandemic, there has been a considerable increase in the Demand for commodities pertaining to sanitization like sanitizers, spray sanitizers, dettol, face masks, tissue paper and toilet paper. This implies that there has been a Demand Shock as the demand for these sanitization commodities has increased suddenly and is at an all time high. As a result, the Price Gouging phenomena took place. The sellers increased the price of the above listed commodities and since the Aggregate Demand for these products is quite high, the sellers can earn a handsome amount by selling these commodities. For example, in accordance to an US based consumer rights report, Amazon sold hand sanitizers and toilet paper at a very high rate than the normal and reasonable rate of these products.

In favour of 'Price Gouging'

Well, Price Gouging has always been criticized but there is one advantage to this phenomena. Price Gauging increases the prices of the commodities and thus encourages more and more supply. More supply and less demand would create a situation of 'Surplus' and this surplus can be used afterwards. Thus, people do resort to 'Price Gouging' to earn profits but it can only be somewhat good in the short run. However, it is not a good activity in the long run.

Against Price Gouging

Price Gouging is not a good economic activity in the long run. Price Gouging paves way for 'Hoarding' and 'Black Marketing'. Increasing the prices of the essential commodities is not a good economic activity in the long run. Many people below the poverty line find it very difficult to afford these commodities and not every poor has a ration card or any provision to get goods at subsidized rates. Furthermore, it also cuts the profits of sellers in the long run.High transportation and other selling costs also affect the earning of the sellers and the overall economy.

Even during the times of natural disasters and other difficult times, it is completely immoral to implement Price Gouging as it somewhere puts the buyers into a tradeoff condition. The buyers are caught in a tradeoff whether to spend money on expensive essential items or to save the money for other other options or things. Hence, Price Gouging should not be a part of the economic activity for a very long time.

Now, in my opinion, 'Price Gouging' should be checked out in the case of essential commodities during the crisis. If possible, Price Gauging should be imposed till a certain limit, and not beyond that. The government authorities should check that the price of the ultra essential items should not be at an all time high, there is a limit to everything. Hence, this can be a good way to control the Price Gouging and the overall economic activity.