Price gouging: An illogical economic concept. Prosecution is frivolous, agree?

Question

Principle of supply and demand suggest something is only worth what someone is willing to pay for it. If a condo in San Diego was renting for $3,000 last month and now renting for $6,000 this month; why should the landlord be prosecuted?

Answer 1

In ordinary circumstances when markets are functioning the price set by the law of supply and demand produces efficient outcomes. However there are circumstances where markets stop functioning the owners of good gain temporary monopoly power for goods needed for survival. For example if natural disasters or a war cause food shipments to be disrupted. Someone who exercises their monopoly power to deny food to people who lack the money to pay exorbitant prices, will almost certainly come under attack, and and the government will not be in position to protect his property rights so it will produce a break down of law and order. Law against price gouging in such circumstances may be illogical from an economic point of view, but from a public policy point of view they make sense. Economic theory assume that there is an orderly society and when this assumption does not hold neither does economic reasoning, I am not familiar with the case you are referring to, but whether or not it is frivolous depends on the specifics not a general economic principle.

Answer 2

He shouldn't. If a consumer doesn't want to pay $6,000 a month for rent, they won't live there. There is no such thing as "price gouging"; it's a term created by those with no understanding of economics. It implies that people lack the ability to substitute goods for others, which is simply idiotic, so yes, I agree that it is an illogical concept and anyone that uses it in support of an argument is broadcasting how little they actually know.

Answer 3

What if I owned everything, and you owned nothing and starved to death. Should you be prosecuted?

Because something is consistent with the principle of a free market does not necessarily make it right.

What is it about a free market that makes it 'right'?

If two people are willing to trade, they will both be better off. Is that good? Is it right? What if I said that free trade is frivolous, because it doesn't deal with the fact that some people are not as productive as others, and they suffer and/or die for it, and that is the greatest problem? Are you going to say that suffering is irrelevant because it does not fit into your picture of free markets, or will you adjust your theory of free markets to allow for suffering?

The reason people are sold on free markets is because they think that under a competitive market, prices reflect costs and scarcities. Thus, free markets under competition are efficient. Thus, the acceptance of free markets is some idea of 'fairness'. This principle of fairness is violated when there are monopoly profits and price gouging. People are taking advantage of various situations and profiting from them. Now, its possible to suppose that the condo owners were not making profits - maybe they are recouping costs - but that is up to the courts to decide.