N95 masks. A Lesson in Price Gouging.
https://www.bloomberg.com/opinion/a...-n95-face-masks-offer-lesson-in-price-gouging
(here's is just part of the article)
College students learn in Economics 101 that a demand curve slopes downward to the right. As demand falls, price falls. As demand rises, price rises. If instead you donโt allow the price to rise โ because of your concern about โprice gougingโ โ the quantity offered for sale will fall.
This isnโt complicated, and itโs true in every disaster. Iโm willing to pay a lot more for a generator when I know the power is going to be out for a week than I am when the lights are on. If the price is unregulated, the difference in what I would pay in those two situations will bring more generators to market. And depending on the cost to enter the market, the rising price will lead more sellers to bring generators to the disaster site, leading to a larger supply, and eventually a lower price.
What Iโve just offered is the argument offered by most economists and most libertarians (and, certainly, by all libertarian economists) about why bans on so-called price-gouging are a bad idea.
To be sure, there are counter-arguments. At their heart lies the notion that if a demand spike is caused by an unanticipated emergency, allowing sellers to significantly raise prices in response will undercut the morally imperative distributional principle of equal access to necessities. If ten people with the same fatal illness need the two available doses of a life-saving drug, the argument runs, itโs immoral to award the drug to the highest bidders.
This intuitively appealing distributional argument helps explain why anti-price-gouging statutes are both widely supported and strictly enforced. But as with every regulatory regime, itโs important that we consider the cost. Suppose that our concern about equity in distributing the life-saving drug leads us to forbid the producer to raise prices. In that case, unless the government forces production at gunpoint, weโre going to get less of the drug (or the generators or the masks): the very thing we say we want. Certainly we can decide to make that tradeoff. But letโs not pretend thereโs no tradeoff to be made.
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Coda: Whenever I make this argument, whether in the classroom or in print, Iโm accused of celebrating the morality of profit over all else. Iโm doing no such thing. Iโm simply insisting that we not pretend that the solution to a shortage is to insist that producers keep prices low.
