Natural disasters, price gouging laws, and essential goods.
Summary
CollapseContext for Use
This could be used in a topic area on price controls or simply supply and demand.
Students must be introduced to basic supply and demand concepts. They also need to be told (many will know, but many may not) that state laws tend to govern these situations in the U.S. It may differ elsewhere.
Some treatment of price ceilings should precede this problem (in an iRAT/tRAT preparation and quiz question perhaps).
The activity probably takes 20-30 minutes, depending on how passionate the students are (they can get worked up over these issues!)
I doubt there are class size limitations, as long as the optimal group size is followed (4-6 students per team).
Overview
This activity is intended to lead students to think about supply and demand, and changes that take place during weather emergencies (floods, hurricanes etc.) and other natural disasters, and how price gouging laws affect outcomes. Students will read a short news article concerning a natural disaster, and consider possible responses. They will be given the text of state or other laws governing prices during a disaster. Students are then given a hypothetical scenario to assess. The outcome will be a sense of how price gouging laws affect outcomes and what economic and related arguments are used to justify how one would act in such a setting.
Expected Student Learning Outcomes
Translate a real world case into understanding how supply and/or demand changes during or just after a natural disaster. Students will understand how price gouging laws can result in excess demand for essential goods.
Information Given to Students
Student handout, Natural disasters and price gouging laws (Microsoft Word 2007 (.docx) 123kB Jan30 18)
Teaching Notes and Tips
Students will likely differ on their views. They will likely drift and actively avoid the logic of supply and demand in some cases (although with good balanced groups, at least one and maybe more will focus supply and demand forces). At some point, if the students do not make this point, the instructor needs to note that although normative assessments may differ, price gouging laws do not address the shortages of goods that develop. This demonstrates supply, demand and adjustment in a setting that should generate interest. Some will accept this, others will resist. A test question may help reinforce the point.
Note that the version in the file requires a multiple choice response. I have also given the problem as a "fill in the blank" type question. It somewhat depends on how one sizes up the class. If you think they are sympathetic to price gouging laws, consider have a statement that goes against them, then they can agree or disagree. If they seem to be "all in" with getting rid of price gouging laws, suggest the opposite view for them to agree with or not, challenging their thinking. I've given this twice in three sections each time, and have found there were several willing to jump in on either side of the issue.
Note: I had a recent conversation with an undergraduate who expressed discomfort with the idea of rational decision making in this context. This student said she was much more interested in thinking about and empathizing with someone caught in a disaster than analyzing the problem in economic terms. This student apparently thinks the goal of helping the victim of the disaster is not what the economy analysis has as its object, which can be puzzling. This is a difficult issue to treat, and it takes much effort to try to bridge the gap between those who want to avoid the economic way of thinking, and those of us trained and experienced in that method. I don't have a ready answer as to how to approach this, but I tell myself to devote as much effort as I can to understanding the student's view of this.
Assessment
References and Resources
https://www.youtube.com/watch?v=h9QEkw6_O6w&t=3s