The Economics of Price Gouging

By Jodi Beggs, About.com Guide

Price gouging is loosely defined as charging a price that is higher than normal or fair, usually in times of natural disaster or other crisis. More specifically, price gouging can be thought of as increases in price due to temporary increases in demand rather than increases in suppliers' costs (i.e. supply).

Price gouging is typically thought of as immoral, and, as such, price gouging is explicitly illegal in many jurisdictions. It's important to understand, however, that this concept of price gouging results from what is generally considered to be an efficient market outcome. Let's see why this is, and also why price gouging might be problematic nonetheless.

Previous

• What Is Price Gouging?
• Modeling an Increase in Demand
• Price Increases Versus Shortages
• Arguments Against Price Gouging
• Income Inequality and Price Gouging

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