Q2

The Orlando Sentinel newspaper had an August 30, 2019 story titled "Hurricane Dorian: Florida activates price-gouging hotline." Florida has a "Price Gouging Statute" which makes it illegal to raise prices on essential commodities when an official State of Emergency has been declared. This is, essentially, a price ceiling at the pre-emergency levels. While no one can argue with a law that tries to limit exploitation of people in times of emergency, we can as economists analyze the impact of this government intervention.

Consider the market for some essential commodity, such as ice. Assume the demand curve slopes down and the supply curve slopes up. Depict the equilibrium before the emergency. On the same graph show the impact of the emergency, clearly identifying any shifts in the curves and any changes in the market equilibrium in the market for ice, keeping in mind the following two outcomes of the hurricane:

• Electricity is not operating, refrigerators are useless, and people need to stock coolers to save essential foodstuffs.
• The local ice plants have lost much capacity due to the hurricane's disruption of their business.

If the Florida Price Gouging Statute is in effect, depict this price ceiling on the graph, identify its impact on the market for ice, and discuss the efficiency of this statute in the eyes of economists.