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Trigger Warning: Price Gouging Is Actually Beneficial

Trigger Warning: Price Gouging is Actually Beneficial

By Jim Sterling

Despite what pearl clutching social media posters may want you to believe, price gouging is not only a natural economic response to disasters, it’s actually beneficial.

Imagine, if you will, two scenarios: you are shopping for supplies for you and your family after a major disaster. In the first scenario, you come across a pallet of cases of bottled water selling for $5. How many would you buy? If you are like most people, you will pile as many as you could afford into your cart. Water is a necessity and you are naturally going to want to acquire as much as you can. The question of how much you actually need probably isn’t going to factor into your head.

In the second scenario, you come across a pallet of cases of bottled water selling for $50 each. The prohibitive price is going to shock you and then force you to take inventory: how much water do I have? How much will my family need? Not only will you buy less water (ensuring more people have the opportunity to buy some), you’re also likely to conserve your usage a lot than you would if it was being sold cheap.

The law of supply and demand drives prices up during and after a disaster. This is simple economics: more people want something, the increased demand means there is less to go around, which results in higher prices. But the benefit here is that higher prices encourage sensible buying and conservation. Instead of whoever makes it to the store first buying all the water or gasoline, the high prices temper impulses and cause restraint. It causes people to not buy more than they need, which allows for much more people to have access. Rather than running out of goods, high prices ensure more people the opportunity to buy them, even if the prices are higher than normal.

Higher prices also provide added incentive for companies and truck drivers to risk their property and even their lives to bring additional supplies into dangerous disaster areas. This means more water, more gasoline, more food, and more needed supplies being brought into disaster areas because the added profit negates the added risk the situation poses.

While Facebook commenters may want to share pictures of high prices and lament the “greed” they see behind them, the truth is that price gouging is natural and beneficial.

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