When a natural disaster such as a hurricane hits a region, basic com mod/ties such as gasoline and bottled wator axpenonco increasing demand and shrinking supply. These shifts in demand and supply curves cause prices to rise, leading some people to complsm about "price gouging. * But, as journalist John Stossel argues in thrj opinion piece, there is an upside ro higher prices after a disaster strikes
In Praise of Price Gouging fly John Stossel
Polltnam arri the medu arc funoji about pisce Mewses in ihe wake of Humrane KacrVw Tt*y warn gas «dons and watei sellers punhhed
It you want to team poms cwling down on mean greedy profaea pusHng «Yt-'gougng* rifles It d veryyxxi thing. Bui f you're oneol the people the Ijw "piotetts" hum "price gojgnj" you »von* fair.11v»rl Consider this sceoaito you ire thlisty -wired that youi baby h Qoing to b«ome deh>tfrated You find j stole th* s open and the stmoww think it'-, mmoral to tale ar>nar<age of yew duress, so he wool charge >cu a dire mere thin he charged lut week foil you can't buy water from hm »'t soldo.«
Vou continue on »our quest, urd fiftillr Ird (hit dreaded morniet. Ihe oice aw He oflers a bottle of vwt« thtt cost 51 bn *«l a an "cwifagwius" p<ke—say $20 You p»y < to sutlve the disaster.
You resent the price gcuger. But ¡1 he hadn't demanded S70, he'd hum hcer. out of water, u was th? pr<e gouge«'} 'erptofta I kin' tfut saved roj child
It saved her btcojie poopb tool out foi ihn ow intcresti. Defoe you 901 to ihe water seler. other people CM At Si a bottle, the/ Stocked up. At S20a bottle. (lie/ bought mere cauroudy. By charging SXl the ptKe rpi>get males vun> hR wafer goes to those who realty need it
The peopk- Ihe yjtlhcritd polhtiirr-thr* are cruefen ate doing the most to Mp AaurrinQ thr> demand for bcttW water MS <x>r«g >0 flo up. the/ tcu/it a tot ol«. ptynng to resell II at a sleep profit. II they hadn't dene thtt, that water would rc< have been ar. »tatfe for the (xcfie who need k the most
Might ihe water have been provided by vokxmvni'Cortainl/ usmr people help ot h en out of teoevoWr<e. But we can't count on bene»oleree. As Adim Smith »wot«. H Is not (ram the bcnr.rterce of the butcher, thrbwivr or the baler, that A*cancxp«i wr dinne'. but from the» regard to the»» i*vn rceiest:
Consider the Mere penpectke:
II he's nor going to male a fog profit, why open up the store at ai? StajiiK) In a drsas-ter ere* it drngenxs and means gr/tng up the cppcittuity to be with family m order to rale care oi the riceds of stongen Why tate the rtsl/
Any number rf serrxes—rorfng for rt ample. caipentry, or tiee removal we in oveiwhetnrg ctemand a disaster. VNhen the lite comes to fbufd hew Oritnv ifi sale to (xedct a shortage ol total carpenters the city's own MpuUren of carpenter» won't be enojgh
If this weie a tutaltar.an country the government might |uit order a bunch of tradesmen to go to New Wearrv But m a free socwy. those tradesmen trust be per susded 10 Iheii Ixrrm and lamilex lej.r their emptoyen and custcmerv and drt»s? fi<jm say, Wisconsin tn tafcf wort h New Ortearvs. If ihe, can't male more money in louiuna than 'Ahconsh i^ry «««id they nuke the trip?
Some may be moWwted by a desire 10 be lie role, bul we cml eipect e-ough liexx-. to fiB Ihe need alter week most Till na>r thw tor the umo rra son most Africans go to *ort to irale money. Any tradesnMn v*fto trefcs to a dsas-tet area must get higher pay than he would get in hh hometown. o> he won t do the trek limit Nm to what hh New Odesns col feago« chirped before llie s(om\ and oen a would be hexi may say. 'the heck wtlh it."
if he chjrgw enough to ¡ostiy Ns ven ture, he's IfcHy 10 be condemned irorally 01 fegaly by the >er/ pecple lie's trying to hep But they fM don't urdentard basK «onomics rorce prtces Aran, and m keep supoleis out. 1« ihe mailet woik, supplers come—and compete cn bnngs pnccs *t low as tfwdullcngcs of the dual ter altow Goods tha were n short vjopff become Mailable. e»«n to the peer.
It's the pete "gougcri who berg the water, ship the gtsoAnci fn the root, and rebuild the cities The pike 'gowns' sa»e Ises.
you are contributing to the demand for that item. Whenever you look for a job, you are contributing to the supply of labor services. Because supply and demand are such pervasive economic phenomena, the model of supply arid demand is a powerful tool for analysis- We will be using this model repeatedly in the following chapters.
One of the Ten Principles of Economics discussed in Chapter 1 is that markets are usually a good way to organize economic activity. Although it is still tOO early to judge whether market outcomes are good or bad. in this chapter we have begun to see how markets work. In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of supply and demand to serve that end. Supply and demand together determine the prices of the economy's many different goods and services; prices in turn are the signals that guide the allocation of resources.
For example, consider the alWatkm of beachfront land. Because the amount of this land is limited, not everyone can enjoy the luxury of living by tlx- beach. Who gets this resource? The answer is whoever is willing and able to pay the price. The price of beachfront land adjusts until the quantity of land demanded exactly balances the quantity supplied. Thus, in market economies, prices are the mechanism for rationing scarce resources-
Similarly, prices determine who produces each good and how much is produced. For instance, consider farming. Because we need food to survive, it is crucial that some people work on farms. What determines who is a farmer and who is not? In a free society, there is no government planning agency making this decision and ensuring an adequate supply of food. Instead, the allocation of workers to farms is based on tin? job decisions of millions of workers. This decentralized system works well because these deciskms depend on prices. The prices of food and the wages of farmworkers (the price of their labor) adjust to ensure that enough people choose to be farmers.
If a person lud never seen a market economy in action, the whole idea might seem preposten>us- Economies are enormous groups of people engaged in a multitude of interdependent activities. What prevents decentralized decision making from degenerating into chaos? What coordinates the actions of the millions of people with their varying abilities arid desires? What ensures that what needs to be done is in fact done? The answer, in a word, is prices If an invisible hand gukles market economies, as Adam Smith famously suggested, then the price system is the baton that the Invisible hand uses to conduct the economic orchestra.
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