Question

Explain in depth why price controls may actually end up making consumers worse off in areas that have experienced natural disasters such as hurricanes.

Answer 1

Just like natural disasters such as hurricanes, earthquakes, or floods don’t change the fundamental physical laws of gravity or aerodynamics, such natural disasters also don’t change the basic laws of demand and supply. A hike in market-based prices following a disaster are the most efficient approach of eliminating shortages, allocating scarce resources, and attracting essential supplies to the areas that requires them the most. Without the initial hike in prices though, there would be no incentive for suppliers to increase supply; and consequently shortages occur and prices will not reduce