Monday, September 15, 2008

Don’t Knock Price Gouging

Jim Cardoza has an interesting post over at Liberty Pen regarding price gouging at gas stations. I would add the following to his great comment: We understand the benefits of low prices but we have a harder time understanding the advantages of high prices. During a crisis, people will tend to panic and overstock on all essential items like gasoline. Higher prices tend discourage a mad dash to grab every drop of gasoline when there is not enough to go around. Ask yourself this regarding “price gouging,” would you rather have a gas station that decided not to raise prices to match demand and that ran out of gas or would you rather have a gas station that raised its prices to match scarcity and therefore never run out of gasoline during a crisis? Before you have an emotional response, think about it.

1 comment: said...

I love economics. I'm thinking about teaching it at the high school level.

And it is true. Price gouging can be a good thing. This way, at least when it comes to gasoline, supply is left over after the initial run.

Also, that's why we have competition. If you do not want to pay $5.00 for a gallon of gasoline, then go down the street to the next guy.