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Jodi Beggs

The Obligatory Hurricane Price Gouging Post...

By October 31, 2012

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It seems like two common themes come up in economics every time there is a natural disaster.

One is the broken window fallacy, or the notion that disasters are somehow good for the economy. (While they do stimulate production in the short run, an economy would still be better off not having a bunch of stuff get ruined and having reseources devoted to growth rather than replacement.)

The other is the concept of price gouging, or raising prices in response to increased product demand as a result of crisis situations. The non-economist consensus seems to be that price gouging is bad, as evidenced by the fact that it's illegal in many jurisdictions, but economists are on a mission to (rightly, in some ways) make the case for the benefits of such a practice. Matt Yglesias presents a well-reasoned analysis over at Slate, for example. In addition, I made a handy little primer on the economics of price gouging to help you work through your logic.

Comments

November 5, 2012 at 10:46 pm
(1) Eric S. Harris says:

Milton Friedman said something to the effect that prices of goods vary quite a bit in the short run but are pretty constant in the long run, and quantities of goods vary little in the short run but quite a lot in the long run.

He may have used a specific example of strawberries as the good, and the long run as being roughly a year. When the appeal of strawberries goes up for some reason, the price rises because the quantity produced (or shipped in) can’t vary quickly. But as producers and importers (and maybe even people with backyard gardens) increase the quantity, the price drops back — sometimes even lower than it was before, if the producers and importers overshoot the mark, or develop more efficient ways of getting the good in the hands of consumers.

If the government had stayed out of the gasoline market, there wouldn’t have been shortages — and people wouldn’t have been selling gasoline on Craigslist. Instead, they would have bought it from gas stations — even ones whose power hadn’t been restored. At higher prices it would have paid to get a generator to run the station’s pumps. The distributors’ delivery trucks could have brought them in with a load of gasoline, I expect.

November 24, 2012 at 10:29 pm
(2) VTYSFRWD says:

Price gouging, is like stealing, from the poor. It is taking advantage, of someone, in need, when they are at their lowest.

It takes a very heartless person, to be able, to do something, like this, to fellow human beings.

June 3, 2013 at 1:34 am
(3) shiescept says:

July 3, 2013 at 11:22 pm
(4) Emergency Freeze Dried Food says:

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