HW# 12 Econ 108

A.

For this week’s reading assignment I read the article on Regulation by Michael Giberson. Things that I found interesting in this article were how uneducated people are on how the economy works. The article said that there were 4,000 complaints for gas companies increasing the price of gas by $1 in Tennessee right before a natural disaster happened. This should happen based on how rationing with prices works. As the Demand goes up for a product and it becomes scarce, the price has to go up to ensure that the product does not run out. The price system helps to get this product to the people who need it the most because they are the most willing to pay that much for it. I didn’t understand why some states are putting “price gouging” laws into effect solely because other states have done it. These congressmen should lead based on their own beliefs, not others. This is why they are elected into office because the people that vote them in like THEIR policies. Not someone else’s.  I supported the arguments that the con price gouging laws were making.

 Another thing that I disagree with is that the pro price gouging laws were saying that these companies that drastically increase their prices do it out of greed. We learned in class that greed is destructive to a company and acting in ones self-interest is constructive for a company. People still bought the product and it did not hurt the companies profits or sales so I would disagree that they increased prices out of greed. They did it because they knew that the company would benefit in the long run from the price increase so they acted in their own self-interest.

These laws only hurt consumers, because if the cost of gas goes up and gas companies cant raise prices to the amount that would make them produce the profits that they want, then they may shut down their business until the cost of oil is at the price that they want. This will hurt consumers because oil will now be more scarce since not many companies will sell it unless they can increase the price that they charge for it to make selling it still profitable.

B.

1. Besides eliminating the price gouging law, how can the law be changed so that it does not hurt consumers?

2. If everyone in a disaster stricken area are in extreme need of oil or else they will die, what can companies do to ensure that all of these people receive enough oil to help them survive?

C.

This article talks about the effect that price gouging laws play on companies and how it affects consumers. The price gouging laws have three factors. They are a price deemed unfairly high, an emergency or difficult situation and a product or service useful in responding to an emergency. The argument for these laws is that price gouging is morally wrong. Many people including me oppose these laws saying that these increases in prices are how goods and services get allocated in a free society.

The article also talks about how without the profits that companies are seeking by raising the prices to compensate for increased costs during a disaster, some are closing down until they can get their products at lower costs so that they can abide by the price gouging laws and keep their prices low.  The article combats the argument that the poor can’t buy products at higher prices during disasters when it is needed by saying, “Addressing the particular hardships faced by the poor during emergencies, Zwolinski said, is a task better left to government agencies or charities.” The laws do nothing but keep goods from going where they are needed most. They people who need a product the most are willing to pay the most for it. If someone doesn’t need the product, then they are less likely to get it or get an abundance of it if the price is high. If someone is very needy for a product, then they will do everything they can to get it as long as they have enough money to pay for it.  A great quote about peoples needs and their willingness to buy is, “Yes, consumers in disaster-struck areas would rather not pay four times the usual price for ice or 30 percent more for gasoline, but they generally would be better off having the opportunity to do so rather than having no opportunity to buy ice or gas at all.”

The price gouging laws are becoming stricter and more popular as more states implement them. The article talks about how these laws are easier for corporations to work around than mom and pop shops who can’t adapt to new laws and changes as well due to less spending power and being confined to the area that they are in rather than being all over the country like many corporations are. Trying to regulate prices ends up making fewer resources get to the areas that they are needed the most due to more regulations and costs. This hurts the consumers more than it does the producer. These price gouging laws end up doing the opposite of what they are intended to do and hurt the people that it was supposed to protect. The market should determine what the prices are. This is when a market is at its best. When the government steps in and tries to regulate is when the market starts to have problems, which is what we learned in economics class this year.