Is Price Gouging a Problem?

Is price gouging wrong? For many, this practice does not exactly seem to be ethical. So, there is a moral angle here which suggests that raising prices of goods such as toilet paper and bottled water when a hurricane cuts off supply—and forces the market into a shortage—is not the most humane practice.

The economic angle, which is more important for policymaking, views price gouging as a regular supply-side response to a shock. The economics around this practice suggests that price gouging is not only reasonable, but it also serves many crucial economic purposes.

Lakshya Bharadwaj is a Don Lavoie Fellow at Mercatus Center and a Graduate Research Assistant at the University of Ma