Written by: Marie Kane
In theory, natural disasters could help companies thrive because there would be an increase in demand for goods necessary to survival. The demand for these goods would be relatively or perfectly inelastic, so companies could drive the price up and consumers would continue to buy their goods. In reality, the act of raising the price on certain types of goods and services to an unfair level, especially during a state of emergency is called price gouging, and it’s actually illegal in most of the US. for more information view this Price Gouging Example Video. The blue states in the graph to the right shows where price gouging is illegal, and the yellow shows were there are no restrictions on it. Prior to Superstorm Sandy in 2012 a lodge in Egg Harbor Township in New Jersey charged just under 80 dollars a night for a room. A state of emergency was declared and prices rose 250% to about 200 dollars. Although the price was unfair people didn’t really have a choice in whether or not they stayed at the lodge, it was literally a matter of life and death. Eventually, the lodge was investigated and found guilty of 545 instances of price gouging and had to pay a settlement of $25,000 in refunds to customers, as well as a fine. In the event of a natural disaster the government may impose an effective price ceiling to prevent price gouging.
Works Cited
Cruz, Justin. “Ready for Disaster Part 4: Hurricanes and Tsunamis.” KHON, 21 Aug. 2018, www.khon2.com/community/ready-for-disaster-part-4-hurricanes-and-tsunamis/1020718467.Giberson, Michael. “List of State Anti-Price Gouging Laws.” Knowledge Problem, 18 Nov. 2012, knowledgeproblem.com/2012/11/03/list-of-price-gouging-laws/.
“Home.” KHON, KHON, www.khon2.com/.
Ono, Arito, and Mizuho Research Institute. “How Do Natural Disasters Affect the Economy?” World Economic Forum, www.weforum.org/agenda/2015/02/how-do-natural-disasters-affect-the-economy/.
“Price Gouging - Definition, Examples, Cases.” Legal Dictionary, 14 Jan. 2016, legaldictionary.net/price-gouging/.
I agree that natural disasters harm the economy due to shortages. When a natural disaster occurs, the demand for certain products like bottled water increases drastically, but in the short run, there will not be enough time for suppliers to enter these industries. While existing firms will produce a higher quantity, the fixed cost of their operations will make only a limited amount of increased production possible before marginal cost exceeds marginal revenue. Until enough time passes for suppliers to enter the market or for existing firms to increase their fixed cost, there will be buyers willing to pay but unable to find goods to buy, creating deadweight loss.
ReplyDeleteI find it a little weird that some people/businesses look forward to natural disasters because they can make a profit off of them. I agree that natural disasters cause more harm then good in the economy. This can also be seen in Texas and Florida with Hurricane Harvey and Irma, where they did a lot of harm. I am sure that some businesses benefited off of this, but there were a lot more casualties than goods.
ReplyDeleteI cannot believe that businesses would actually be grateful for natural disasters given the fact there's a huge amount of damage one small disaster can cause. I can understand that when different businesses and goods become ruined from the disasters, other unharmed businesses benefit. But this does not mean they should wish upon natural disasters that injure even human beings greatly. Without thinking about human and property damage, the companies and/or businesses will indeed benefit greatly when big corporations get destroyed. The suppliers of the businesses still standing will have a great increase in demand for their product. This gives them the opportunity to increase their quantity of supply while the destroyed goods and services are still trying to rebuild themselves from the natural disaster.
ReplyDeleteEllie Reyes