In: Economics
Why do many economists think that stores should be allowed to raise their prices after a natural disaster? What are some arguments against price gouging?
Price gouging often takes place after a period of a demand or
supply shock. Economists justify that stores should be allowed to
raise prices after a natural disaster as the supply shrinks, but
the demand remains the same and in order to make up for the
difference, stores should charge more. This also prevents the
customers from hoarding things during crisis and only lets them buy
the things necessary.
Price gouging is not necessarily good, morally. This is because
during any disaster the consumers are affected as well and
increasing the prices seems only unfair to those who cannot afford.
For instance, in the current pandemic situation, the prices for
masks and hand sanitizers rose to a certain level and many could
not afford it.
It is expected that with the increase in price, the producers will
be able to produce more and eventually the price will fall,
however, it is not always the case as there are high
uncertainties.