Retailers and suppliers in the US are facing a blizzard of lawsuits and enforcement actions over alleged breaches of "price gouging" rules on products including face masks, disinfectant and toilet paper, as industry data show average prices of a range of household goods have risen sharply during the pandemic.

According to data from Nielsen, in the 34-week period from March 2020, average in-store prices have risen 53 per cent year-on-year for hand sanitiser, 21 per cent for bleach and 19 per cent for paper towels. Prices of laundry detergent and dishwashing soap are up 10 per cent.

But businesses argue in their defence that their own costs have risen. "It may be totally justified based on the difficulty in doing business during this time," said Brian Mahanna, partner at the law firm WilmerHale. Critics of price controls argue that the measures are counter-productive because they encourage consumer hoarding and discourage manufacturers from expanding production.

Source: https://www.ft.com/content/231fb18b-32b2-4221-864a-c17fd0672ea2

3.1 Use a supply and demand diagram to explain why the prices of hygiene products have

risen sharply since March 2020.

3.2 With reference to price elasticity and income elasticity, comment on the consumer

demand for hygiene products before and during the pandemic.

(8 marks)

3.3 To tackle the price gouging issue, some suggest that the government should implement price ceilings on necessity goods. Do you agree with this suggestion? Explain why.

(12 marks)