When the prices of necessities such as gas and bottled water rise as a result of a natural disaster, it is efficient for the government to impose price controls to keep suppliers from "price gouging" consumers.

Question

Quizplus · Accepted Answer

While price gouging can be seen as morally reprehensible, imposing price controls can actually lead to shortages and make the situation worse. When prices rise, it signals to suppliers to increase production and consumers to conserve resources. Without this signal, suppliers may not be incentivized to bring in more resources, which can result in widespread shortages. Instead of price controls, the government can provide subsidies or relief for certain groups affected by the disaster.

When the Prices of Necessities Such as Gas and Bottled