Over the past six weeks, Florida, and much of the Southeastern United States have been pummeled by hurricanes. Many lives were lost, and billions of dollars of property was damaged. Many people returned from shelters to find their homes in ruins. They were the lucky ones who escaped the hurricane with their lives. But now they’re faced with another problem. They’ve got nowhere to live and they need to rebuild.If this were truly a free society, where there was limited government interference in our lives, we would notice that prices on pretty much everything in Florida would increase. Is this a bad thing? I would argue that it’s not.
Think about the case of a hotel that usually charges $40/night, that started charging $160/night after the first hurricane came through. They were accused of “price gouging”. Many retail stores were accused of the same. What people don’t realize though, is that there is a good reason for increasing prices – other than padding the big bad business man’s pockets.
Think about a hypothetical hotel, with 50 rooms, in a town that was destroyed by the hurricane. Now let’s say that the town has only 50 families. If the hotel’s normal price is $40/night, some of those families may not have much of a problem with occupying two or more rooms. Do you see the problem here? If any one family occupies more than one room, there will be another family that won’t have a place to stay. So, if the hotel owner decides to increase their prices to $160/night, some of those families may think twice about renting out more than one room. They’ll manage to all stay in the same room, just so they won’t have to pay so much. They might not be quite as comfortable as they would be, had they rented out two rooms, but they still have a place to stay. Basically, what the hotel owner is doing is adjusting the price accordingly to the increase in demand for a place to stay. It’s not sleazy; it’s basic supply and demand. It makes sense doesn’t it? I mean if the demand for something goes up, the price people are willing to pay for it should go up with that demand.
Now I’m not saying that businesses should increase their prices so much that people won’t be able to afford the things they need, like food, shelter, water, etc. I just think that the price should increase enough so people are only buying what they need to buy. Enough so that when you walk into the store to buy 20 gallons of water, at the regular price, you’ll think twice and only buy the 2-3 gallons that you may really need – leaving the other 17-18 gallons for someone else to buy.
Think about it. The more valuable a product or service is, the more money people should be willing to pay for that product or service, to equal the demand for it. It’s not sleazy, its just basic economics.
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