Question

select all of the statements that discuss one of the problems with price gouging laws that prevent prices from rising to the new market equilibrium after a disaster.

Answer 1

The problems with price gouging laws that keep prices low are:

1. Price gouging laws do nothing to address the underlying issues that cause shortages after a disaster. In fact, they often make the problem worse.
2. When prices rise after a disaster, producers are encouraged to produce more of the good and bring it to the disaster area; price gouging laws short circuit this effect.

Here are the options to this questions:

1. Price gouging laws reduce shortages after a disaster by keeping prices low.
2. Price gouging laws do nothing to address the underlying issues that cause shortages after a disaster. In fact, they often make the problem worse.
3. When prices rise after a disaster, producers are encouraged to produce more of the good and bring it to the disaster area; price gouging laws short circuit this effect.
4. When prices rise after a disaster, consumers are encouraged to consume less of the good and leave some for others to purchase; price gouging laws short circuit this effect.
5. Price gouging laws keep prices low after a disaster. This forces producers to produce more of the needed goods
6. Price gouging laws keep prices low after a disaster. This forces consumers to buy less of the good than they otherwise would

Price gouging is when the price of a good or a service is increased to very high levels when the demand for the product is higher than the supply of the product. Price gouging usually occurs after an event. For example, after a natural disaster.

In order to prevent price gouging, the government can set a price ceiling. A price ceiling is when the maximum price for a good or service is set by the government. When prices are prevented from rising above a particular price, this benefits consumers as they would be able to purchase goods at a cheaper price. But producers would be disadvantaged because their profit margins would fall. This can lead to a shortage problem as demand would exceed supply.

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