EVERYDAY Economics

Are anti-price gouging laws a good idea? When Uber introduced surge pricing, economists cheered, while many riders jeered. In fact, the idea of raising prices at moments of high demand is so off-putting that many states prohibit such temporary price increases, particularly during weather emergencies. These laws ban "price gouging." But is this a good idea? Supplies like generators, water, bread, and gas can all quickly disappear in the face of a big storm, and it can be impossible to get a taxi in a snow storm. It simply isn't possible for everyone to get as much as they want at the original prices. Those who support anti-price-gouging laws argue that raising prices only benefits businesses because businesses are limited to whatever inventory they have on hand, therefore supply is pretty inelastic. They also argue that price gouging hurts the poor, who are the least able to purchase necessities at higher prices. Those who argue to allow price gouging point out that anti-price-gouging laws are a form of a price ceiling. That means they do two things: They lead to a decrease in the quantity supplied and an increase in the quantity demanded, thus creating shortages. For example, price ceilings in weather emergencies might encourage consumers at the front of the queue to overbuy at normal pricesfor example, buying an extra loaf of bread "just in case"exacerbating the shortage. Critics of anti-price-gouging laws also argue that allowing prices to rise will lead to an increase in the quantity supplied, even during a natural disaster. They believe that higher prices will encourage enterprising individuals to find a way to get more supply to where it's needed. What do you think? (Hint: Notice that this debate depends a lot on the short-run price elasticities of demand and supply during a storm.)

1. Read the "everyday Economics" on price gouging in6.2 in p. 148. State one argument in favor of price-gouging laws and one argument against them. Then tell me why or why not you think price-gouging laws are a good idea.