The Profit Motive

Many states have price gouging laws that prevent businesses from increasing their prices when demand is at its peak. What these states fail to realize is they are doing nothing by enacting these laws. A simple understanding of supply and demand will show that these laws are actually hurting the consumers they were intended to protect.

When a price cap is put in place it discourages businesses from increasing their supply of necessities during a time of disaster. Without a price cap the business has every incentive to increase their supply of products/goods that are in demand because they will be able to charge more due to the demand and earn a greater profit. However, when a price cap is put in place the incentive a business has to increase their supply is reduced dramatically. Another unintended consequence of price cap laws is that it will bring a black market to the industry. After a price cap is put in place people like me will go to these stores and buy up as much supply of the product in demand and then re-sell it outside the store at the true market price which is much higher than the caps put in place. Therefore, consumers will not benefit from this price cap either way.

Anyone who can grasp the concept of freedom knows that consumers do not have to purchase a product if the price is too high. If the price is indeed too high the business will not sell any of their product and will go out of business unless the price is brought back down. Therefore, it does not benefit the business not does it make sense to set prices too high because they will not sell anything. However, if the price remains high it is only because consumers are willing to pay that price for the product. Here's the kicker, without a price ceiling there is a PROFIT motive which will increase competition which will actually push down the price due to the increase in competition. Sometimes it's strange how economics works isn't it. Most laws are put into place with the best intentions but most of the time they simply yield the same negative results. A new law that was meant to help consumers will typically just throw a corkscrew into the daily operations of a business which will end up hurting consumers in the end.

The main reason price gouging laws are put in place is because demand for a product is too high and/or supply is too low. However, as long as consumers have free will there is always an option to not purchase a product if a price is indeed too high. If enough consumers do not purchase the product the business will be naturally forced to lower the price to what the consumer is willing to pay. Price cap laws encourage hoarding and prevent the product from getting to where it needs to go. Even if you think price gouging is unethical, putting in a price cap doesn't make sense since it will only cause a decrease or ELIMINATION of the supply which prevents the product from reaching the people that need it the most! This is why price caps can sometimes lead to chaos since the product is only available on a first come first serve basis so you can bet people will be running to get in line! Price caps will always result in a shortage, leaving most consumers completely without a necessary product in the time of need. To truly help consumers, there should NEVER be a price ceiling so that everyone can have an opportunity to purchase a product if they wish.

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