Gouging Laws

Why would anyone have a problem with gouging laws, laws against so-called “price gouging” sound like a good thing.

Why would we not want to protect victims of natural disasters from greedy sellers who are taking advantage of the bad situation?

Well there is more to it than that of course!

Allowing prices to rise after a natural disaster may not seem fair but when you think about it, it makes sense. A price gouging law actually causes shortages in a emergency situation by not allowing the price to adjust to the market. Price-gouging laws hurt the very people they are intended to help.

If prices are allowed to rise naturally then other suppliers will see the rising price as a indicator that there is a economic profit to be made in the disaster area and to start shipping in their products to take advantage of it.

Still sounds kind of greedy huh?

Well lets look at it the other way. When prices are not allowed to adjust naturally then people have no reason to ration at the low price. Suppliers also have no reason to ship additional products into the area because it  costs more to get additional products into the area. Just like any supply curve, the price goes up the more product is supplied. So with the low price of the product and the high price of shipping in additional units, a predictable shortage will always occur.

It seems greedy but that may be a discussion for capitalism as a whole. Capitalism will always prevent shortages if allowed to run naturally.