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Price gouging

From Academic Kids

The term price gouging refers to the phenomenon of sharply rising prices of items in (often temporary) high demand.

It is semantically loaded with negative connotations against the merchants involved. However, according to Thomas Sowell's book, Basic Economics, high prices can instead be viewed as information for use in determining the best allocation of scarce resources for which there are multiple uses. Thus, when a natural disaster strikes, and the price of plywood jumps up, a hobbyist considering a new base for his model railroad layout may opt to wait until prices have returned to pre-crisis levels, just to give one example.

A criticism of laws against price gouging is that it leads to shortages of needed supplies in emergency situations. For example, in preparation for a hurricane consumers tend to rush to stores to purchase supplies. If price gouging were allowed, it is asserted that it would prevent shortages of supplies by dicouraging people from purchasing more than they truly need due to rising prices as supplies dwindle. Also, delivery of new supplies to stores is encouraged by higher prices. It is believed, therefore, that this would allow for a more equitable distribution of supplies --both to earlier buyers and late-comers.

Most still view price gouging as an immoral activity and many regions have laws banning profiteering from emergencies. These laws usually state that prices should not climb more than a certain percentage after a disaster without demonstrable cause.

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