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Assignment – Economics
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Assignment – Economics
Using the Demand-Supply framework, explain why the prices of essential goods such as water and milk increase during a natural disaster.
During Natural disaster, it is expected that the essential commodities like milk and water are very scarce since their availability is very minimal and the marginal cost leads to the firms producing less output. Therefore, the supply curve shall shift to the left side. With an increase in marginal cost at the present price, the producers will find that price being lower than the marginal cost.
Price of Water
Quantity of water during drought
Graph 1: A graph of Price of Water against Quantity of water during drought.
What is price gouging? What are some of the recent instances of price gouging in the United States?
The term Price gauging indicates to the situation where a vendor spikes to the values of goods, commodities or amenities to an equal that is much complex than what is well-thought-out fair or rational and is well thought-out potential unscrupulous degree and exploitive. Normally, the process occurs after the supply or demand. For instance, the United States has witnesses necessities price increase after natural disasters like the hurricane. Florida as a criminal offense witnessed law of “state of emergency” where a provider of significant goods services increases abruptly the prices when he beat somebody to it a civil emergency. Like a retailer increasing the existing stock of bread and milk prices when the hurricane is imminent.

Is price gouging legal in the United States?
The laws against price gauging in the United States at the state level have been held constitutional as an exercise that is valid, and the police preserve the powers to allow it as long as there is an emergency and combined with anti-hoarding measures (Tarrant, 2015). As of 2008, 35 states in the United States enacted laws against price gauging (Tarrant, 2015).
As an Economist, would you argue that price gouging is necessary for the efficient allocation of scarce resources?
As an economist price gouging is necessary for allocating the scarce resources. After the natural disaster, the supply of important items like canned goods, flashlights, gasoline, and bottled water have become more rigid while the demand of this commodities tremendously increases. Therefore, the “market – clearing price” where the quantity supplied is the same as the demanded quantity increases significantly.
Reference
Tarrant, M. S. (2015). The effects of anti-price gouging laws in the wake of a hurricane (Doctoral dissertation, Montana State University-Bozeman, College of Agriculture).