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In a disaster situation if there is no elasticity between price and supply then price gouging laws (social or legal) make a lot of sense. For example, if there

In a disaster situation if there is no elasticity between price and supply then price gouging laws (social or legal) make a lot of sense. For example, if there's a fixed amount of water around regardless of price people shouldn't be able to raise prices. But in this case there IS elasticity between price and supply, right? Uber is claiming that they'll deliver better service by increasing prices, because supply will increase proportionally. Thus, a functioning economy. AND Uber is waiving 100% of their fees! Price gouging? Really? (Side note: NYC would have more capacity for handing this emergency had they not given an artificial monopoly to cab companies over the last century, vis-a-vis medallions. I realize we can't change the past. Let's just be aware of it so we can learn how to improve.)

ddlatham 14y ago
Even if there is no additional supply available, there still could be some benefit. If the price of gas were far higher, people may not fill up their tank all the way and only purchase what they really need. So instead of the first X people getting full tanks and the next Y people getting nothing from an empty gas station, in some scenarios everyone could get a smaller amount. However, the issue of poor people not having access at higher prices is still a problem. It may be better served by having the government step in to provide each person $Z in gas money (paid for by a tax on "gouging") rather than an outright gouging ban.
- adamsmith 14y ago
  You highlight really good points. I guess at scale the government does exactly what you propose (step in and allocate supply per person), for example rationing in World War 2.
- eru 14y ago
  Yes. But don't give people gas money. Just gives them money.
  - ddlatham 14y ago
    Agreed. I say "gas money" above so people envision the poor being able to pay for the gas at high prices, but the whole point of keeping it based on taxes and currency is so that the market can balance between alternatives besides buying gas as well.
jorgeortiz85 14y ago
NYC has been allowing black cars to pick people up off the street during the crisis, so there isn't a shortage because of "medallions". There's a shortage because 5 million daily subway riders have to find alternate forms of transportation.
liber8 14y ago
Maybe I'm misunderstanding your point, but your first sentence seems completely illogical. If there is a fixed supply of water, what better mechanism than price exists to efficiently determine the best use of that water? Not allowing people to raise prices means you end up with wildly inefficient allocation of resources (i.e. first guy in line says, "Man, there's a remote chance this flooding lasts for 2 weeks. Water is the same price it was pre-hurricane? I'll take all you've got.") Similarly, not allowing people to raise prices actually decreases supply. If you remember post-Katrina, there were numerous "anti-price gouging" orders enacted. The result? All the people who were willing to drive a truck full of generators (and plywood, and water, etc. etc.) 1000 miles to make a few bucks/hundred bucks profit per unit now had no incentive to do so. And so they didn't. And the people of New Orleans suffered needlessly.
- pavel_lishin 14y ago
  As I recall, authorities turned away anyone trying to make a quick buck by selling essential supplies. Even with fixed prices, there was a limited number of goods. Driving a truck there to unload your wares still made economic sense, if you could do it at a large enough scale.
  - liber8 14y ago
    God forbid people be allowed to voluntarily exchange their money for essential supplies! Snark aside, whether it made economic sense or not was up to those people to decide. Clearly, it didn't make economic sense for people to drive 1000 miles to sell generators at cost, because people stopped doing it once they weren't allowed to profit. Posters upstream discuss rationing, which never works well either. It still ends up in an inefficient distribution of resources. This is logical. How can the person doing the rationing possibly know how much water each of 300,000 individuals needs? Maybe I have a bunch at home and don't need any, whereas my neighbor needs extra because he's severely dehydrated. Whenever rationing occurs, there is always increased corruption and graft, and a market for the coupons (or whatever tally method is chosen) always arises anyway.
    - 14y ago
swohns 14y ago
I'm not sure there is actual elasticity here, despite Uber's claims. This is simply anecdotal, as a New Yorker on the UWS, getting downtown took upwards of 2 hours (instead of the usual 20) and the traffic was filled with numerous black cars. The real problem here is not the cars on the street, but more the capacity of the city. Great report on this here: http://www.npr.org/blogs/money/2012/07/31/157477611/does-new-york-city-need-more-taxis http://www.npr.org/blogs/money/2012/07/31/157477611/does-new...
enoch_r 14y ago
I'd note that completely inelastic supply almost never occurs, even in a disaster. For example, if prices for water are high, it raises the likelihood that some entrepreneur will fill up a truck with water bottles and drive into a disaster zone to sell them. Or that a shopkeeper will stay open past his normal hours, or not set aside a bunch of water bottles for himself. And of course there are dynamic effects of anti-gouging laws, too. Even if supply were unchangeable during a disaster, the knowledge that prices will--or will not--be allowed to rise when a disaster occurs change how shopkeepers will prepare when a storm is approaching.

ddlatham 14y ago

Even if there is no additional supply available, there still could be some benefit. If the price of gas were far higher, people may not fill up their tank all the way and only purchase what they really need. So instead of the first X people getting full tanks and the next Y people getting nothing from an empty gas station, in some scenarios everyone could get a smaller amount. However, the issue of poor people not having access at higher prices is still a problem. It may be better served by having the government step in to provide each person $Z in gas money (paid for by a tax on "gouging") rather than an outright gouging ban.

adamsmith 14y ago
You highlight really good points. I guess at scale the government does exactly what you propose (step in and allocate supply per person), for example rationing in World War 2.
eru 14y ago
Yes. But don't give people gas money. Just gives them money.
- ddlatham 14y ago
  Agreed. I say "gas money" above so people envision the poor being able to pay for the gas at high prices, but the whole point of keeping it based on taxes and currency is so that the market can balance between alternatives besides buying gas as well.

jorgeortiz85 14y ago

NYC has been allowing black cars to pick people up off the street during the crisis, so there isn't a shortage because of "medallions". There's a shortage because 5 million daily subway riders have to find alternate forms of transportation.

liber8 14y ago

Maybe I'm misunderstanding your point, but your first sentence seems completely illogical. If there is a fixed supply of water, what better mechanism than price exists to efficiently determine the best use of that water? Not allowing people to raise prices means you end up with wildly inefficient allocation of resources (i.e. first guy in line says, "Man, there's a remote chance this flooding lasts for 2 weeks. Water is the same price it was pre-hurricane? I'll take all you've got.") Similarly, not allowing people to raise prices actually decreases supply. If you remember post-Katrina, there were numerous "anti-price gouging" orders enacted. The result? All the people who were willing to drive a truck full of generators (and plywood, and water, etc. etc.) 1000 miles to make a few bucks/hundred bucks profit per unit now had no incentive to do so. And so they didn't. And the people of New Orleans suffered needlessly.

pavel_lishin 14y ago
As I recall, authorities turned away anyone trying to make a quick buck by selling essential supplies. Even with fixed prices, there was a limited number of goods. Driving a truck there to unload your wares still made economic sense, if you could do it at a large enough scale.
- liber8 14y ago
  God forbid people be allowed to voluntarily exchange their money for essential supplies! Snark aside, whether it made economic sense or not was up to those people to decide. Clearly, it didn't make economic sense for people to drive 1000 miles to sell generators at cost, because people stopped doing it once they weren't allowed to profit. Posters upstream discuss rationing, which never works well either. It still ends up in an inefficient distribution of resources. This is logical. How can the person doing the rationing possibly know how much water each of 300,000 individuals needs? Maybe I have a bunch at home and don't need any, whereas my neighbor needs extra because he's severely dehydrated. Whenever rationing occurs, there is always increased corruption and graft, and a market for the coupons (or whatever tally method is chosen) always arises anyway.
  - 14y ago

swohns 14y ago

I'm not sure there is actual elasticity here, despite Uber's claims. This is simply anecdotal, as a New Yorker on the UWS, getting downtown took upwards of 2 hours (instead of the usual 20) and the traffic was filled with numerous black cars. The real problem here is not the cars on the street, but more the capacity of the city. Great report on this here: http://www.npr.org/blogs/money/2012/07/31/157477611/does-new-york-city-need-more-taxis http://www.npr.org/blogs/money/2012/07/31/157477611/does-new...

enoch_r 14y ago

I'd note that completely inelastic supply almost never occurs, even in a disaster. For example, if prices for water are high, it raises the likelihood that some entrepreneur will fill up a truck with water bottles and drive into a disaster zone to sell them. Or that a shopkeeper will stay open past his normal hours, or not set aside a bunch of water bottles for himself. And of course there are dynamic effects of anti-gouging laws, too. Even if supply were unchangeable during a disaster, the knowledge that prices will--or will not--be allowed to rise when a disaster occurs change how shopkeepers will prepare when a storm is approaching.