[Related to Solved Problem 12.6 on page 488] Suppose you read the following item in a newspaper article, under the headline “Price Gouging Alleged in Pencil Market”:

Consumer advocacy groups charged at a press conference yesterday that there is widespread price gouging in the sale of pencils. They released a study showing that whereas the average retail price of pencils was $1.00, the average cost of producing pencils was only

$0.50. “Pencils can be produced without complicated machinery or highly skilled workers, so there is no justification for companies charging a price that is twice what it costs them to produce the product. Pencils are too important in the life of every American for us to tolerate this sort of price gouging any longer,”

said George Grommet, chief spokesperson for the consumer groups. The consumer groups advocate passage of a law that would allow companies selling pencils to charge a price no more than 20 percent greater than their average cost of production.

Do you believe such a law would be advisable in a situation like this? Explain.