Should the Federal government impose a price ceiling on essential items such as bottled water during an emergency such as Hurricane Sandy?
Throughout all of my research it is hard to say if price ceilings are good or bad. Now I am more leaning towards federal government staying out of the situation and let the market work itself out. In situations of disaster, demand for essentials like water and fuel goes up, and as a result so does the price. Price ceilings alter market supply and demand which can have some unintended consequences in the end. It seems that controlling the price for these short term crisis would help consumers in need, but through my research I have found some opposing opinions.
Price controls can often hurt those they are intended to help. These laws are set to prevent “price gouging” which aims to keep prices reasonable in times of disaster and inflation. However, laws against natural price fluctuations can further diminish the supply of scarce goods. The government often thinks that the price is too high when really the supply is too low. In an article from The Foundry, Benoit explains, “Artificial price ceilings discourage suppliers from relieving scarcity of goods. If, for example, the price of gasoline were allowed to rise, suppliers would likely scramble to sell their product where it is most valued. And over time, as the supply of gas increased, its price would decrease.” Price ceilings can lead to shortages because the sellers do not have the funds or incentive to keep supplies up, and thus, prices down.
I have also found that price ceilings can create black market activity and unethical hording on the suppliers end. Some may buy up as much as they can further decreasing supply and selling them for outrageous prices on the black market because the demand is there. Also, some suppliers can get exclusive as supplies continue to go down with no price increase, only selling to family, friends and people who can afford the “gouged” prices.
Another factor that I have looked over is government subsidizing versus price controls. I think subsidizing is a lot more effective when dealing with these situations because it does not cause shortages like price ceilings can. A way to look at this is through Red Cross stepping in helping to keep supplies up and prices down.
All in all, I feel that the government should always resort to letting the markets work themselves out. These price ceilings are meant to help the consumer but can often end up hurting both ends of the market. Best to let the invisible hand work it’s magic!
Hammond, Melody. “Advantages and Disadvantages of Price Ceiling.” Houston Chronicle. 2014: Hearst Newspapers, LLC.
Benoit, Michael. “After Hurricane, Supply Crisis from Price Controls.” The Foundry. November 2012: The Heritage Foundation.