Question

Polchon, but out the same time discouraging consumers for buying more. As a result, shortage will decrease to a point where quant demanded equals quantity supplied. Tquilo 19. MYTH: Price-Gouging is Bad restored, Mississippi Attorney General Jim Hood announced a crackdown on gougers after Hurricane market Katrina. John Shepperson was one of the "gougers" authorities arrested. Shepperson and his will be family live in Kentucky. They watched news reports about Katrina and learned that people equilib desperately needed things. Shepperson thought he could help and make some money, too, so he again bought 19 generators. He and his family then rented a U-Haul and drove 600 miles to an area of Mississippi that was left without power in the wake of the hurricane. He offered to sell his generators for twice what he had paid for them, and people were eager to buy. Police confiscated his generators, though, and Shepperson was jailed for four days for price-gouging. ABC News, May 12, 2006 Graphically illustrate and explain how the invisible hand (Shepperson) actually reduced deadweight loss in the market for generators following Katrina.

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Answer 1

Since Shepperson as invisible hand offered the market woth supply of generators which was struck by hurricane the demand was absolutely enormous such that Shepperson indulged in price gouging to an extent that he charged double the price at which he brought however he met the demand for generators and thus he reduced deadweight loss which is also known as cost to society due to market inefficiency when supply and demand are out of equilibrium.

Here he created and fulfilled demand with monopoly pricing which caused excess burden. However non availability of generators would have costed the city to import which would have been much higher than what Shepperson charged and hence he reduced deadweight loss or excess burden. Other condition here can be when prices are charged exorbitantly by Shepperson the overall demand itself reduces and forces consumers not to buy as the incentive reduces and thus demand equal quantity supplied which in turn brings prices down near equilibrium levels and thus causes the deadweight loss to decrease as well.

TAXATION PRICE supply Deadweight Loss & mt- - - - - - - Demand a, ao QUANTIT - PB = Ps= So-Q, Buyer Price + Tax seller receives Price Quantity Not Consumed Due to Tax