Across the United States, government officials have threatened to prosecute sellers they deem to be taking advantage of, i.e., price gouging, consumers who are preparing to be quarantined as a result of the COVID-19 pandemic.
1. Is it true that sellers are taking advantage of consumers by charging higher prices?
(Hint: if sellers are responsible for the currently higher prices, why dont they charge higher prices during normal times?)
2. Will preventing price increases lower the cost of acquiring the goods, whose prices are prevented by law from rising?
3. What other forms of competition do you think will become relevant if prices are kept below their market-clearing levels?
4. Compare and contrast the effects of non-monetary and monetary competition on consumer and producer surplus.
(Hint: how do different forms of competition affect the gains from trade?)
5. Finally, assume that due to quarantining, the supply of goods is fixed, i.e., price has no effect on the quantity available. In this case, does letting the price increase serve a useful function?
Instructions: Write a 500 to 750 word, double-spaced essay that addresses these questions. Your analysis must be solely scientific in nature; Im not interested in your opinion about whether sellers charging higher prices is ethical or whether you support price-gouging laws. Indeed, if your essay includes this sort of commentary, you will not receive full credit. Your analysis must also make use of the economic principles we discussed in class. Everything you need to know to answer these questions can be found in the chapters we covered from either Mankiws Principles of Microeconomics or McGuigans Managerial Economics. Please do not feel compelled to use complex terminology or jargon. Graphs are also unnecessary, although I do encourage you to use a diagram to help you structure your analysis when you first get started. Examples of recent issues to from business publications (The Wall Street Journal, Bloomberg, etc.) may be useful to your analysis. Those sources should be property attributed either in the text or as a bibliography. Imagine yourself talking to a relative, who had never had a course in economics. The best papers are those that would be clearly intelligible to such a person.
Additional Details: To receive full credit, you should begin working on this essay immediately. The key to writing a good essay is rewriting, rewriting, and rewriting again, which can take a long time. In addition to the quality of your arguments, I will be evaluating your paper on style, grammar, spelling, etc. In other words, if you wait until the last minute to complete the assignment, its unlikely that youll receive full credit. Im happy to provide feedback on earlier drafts, so please do not hesitate to send me your work well before the due date in order to guarantee that you have time to incorporate my comments.