Question

The government is faced with a lot of challenges when dealing with higher prices. How do you think price gouging can impact their decisions that they have to make.

Answer 1

Increase in prices increases inflation which is not substantiated by the increase in output. With the increase in inflation, the real value of currency decreases which leads to reduced investments and affects foreign trade.

Price gouging is refers to the practice of raising the price of goods and services to an unreasonable unfair level with the intention of exploiting the situations like short supply, natural calamities etc

So, price gouging and inflation have linear relationship, as with the increase in price gouging the inflation too increases which forces governments to interfere in to the market through price ceiling, public distribution systems, increased imports so that the supply could be matched with the demand.