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A recent opinion piece in the Wall Street defended 'price gouging'- charging excessively high prices for essential goods in a disaster zone.

In this video, the example used is of a hurricane hitting a town, cutting the power, and there is a family that desperately needs power in order to refrigerate the insulin their child needs to survive.

So the person selling the generator jacks the price up to 13,000 dollars from 800 due to the surging demand for power, and according to this video, if the price is capped at the typical cost of $800 dollars, someone who doesn't need the power as much as the diabetic child's family will buy it, depriving them of the generator.

The problem with this is that it assumes that the family will even be able to afford the generator at all. It is very well possible that the family cannot afford the generator and will have their child die, while a rich person who doesn't have a diabetic child will easily be able to buy the $13,000 dollar generator.

The alternative approach is to ration essential goods and services as well as freeze the price to ensure that people aren't priced out of getting them, and that people don't take more than they need.

As I understand it, price gouging is supposed to prevent people from taking more than they need due to the law of demand (increases in price lead to lower consumption).

However, this doesn't seem to make sense in situations of inelastic demand. For instance, if the price of a plane ticket or taxi fare in a disaster stricken zone skyrockets, people will not be able to limit their consumption (the alternative to fleeing the disaster zone is death), and if the price stays low, people aren't going to hoard plane tickets or taxi fares, since one person can't consume two spots on a flight for example.

Hoarding is a behavior that occurs when people stockpile goods because they think the price will increase in the future, but if the government tells the public that it is freezing the price, then there is less of an incentive to hoard, and if the government limits consumption to what is strictly needed per person (daily water requirements and caloric requirements are fairly well understood), then people will not be able to buy up amounts of critical goods they don't actually need.

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  • $\begingroup$ How would the answers to this question differ from the answers to the four other times you've asked this question? $\endgroup$
    – ThisIsNoZaku
    Commented Oct 9 at 18:21
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    $\begingroup$ In the video, the expensive generator sells for 1,300 dollars, not for 13,000. $\endgroup$
    – VARulle
    Commented Oct 10 at 13:40
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    $\begingroup$ "...ration essential goods and services..." Lets me start by saying that it is impossible to ration goods/services as effectively, as price gouigng can do. Any time there is goods rationing - shelves become empty instantly. Why? Because people hoard and resell to arbitrage the limit of ration. Same with airline tickets - I can get all my family a ticket at fixed price, even if I dont intend to fly - and resell these tickets on black market and pocket the difference between fixed price and maximum price consumer willing to pay. $\endgroup$
    – slt_omz
    Commented Oct 21 at 19:12

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