To Raise or not to Raise: Morality vs. Economics during a state of Emergency

May 6, 2020

2 min read

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What's going on here?

With the COVID-19 pandemic showing no signs of respite, a crucial question that needs to be answered is whether or not companies should be restricted from increasing the price of essential supplies.

What does this mean?

Situations of emergency are often characterised by a rise in black marketing, hoarding, and price gouging. Price gouging can be defined as sellers trying to take unfair advantage of consumers during an emergency or disaster by greatly increasing prices for essential consumer goods and services. Economists, however, have demonstrated that such increases can create a greater output owing to higher profitability, leading to wider availability of these essential goods and services.

What's the big picture effect?

A 2012 survey conducted by the University of Chicago asked some eminent economists across the nation to comment on how a ban on price gouging during situations of emergency would impact the market. A majority of the scholars condemned the ban, expressing that profits motivate firms to meet the rising demand for any good or service, under normal circumstances.  

However, there’s hardly anything during this pandemic that can be classified as “normal”. The global economy finds itself in a predicament where an increase in price levels may not necessarily fulfil the market demand for essential supplies. In January, contrary instances were observed in China where manufacturers limited the production of masks in order to meet the upfront cost of production. The Chinese government, thereafter, announced a mask subsidy plan which saw an increase in production levels from 10m at the start of February to 115m by the end of the month, according to China’s State Planning Agency. 

Companies must also protect their image and reputation within the market to ensure success in the long run. Therefore, situations like that of a global pandemic requires them to prioritise people before money. A functioning health care system definitely outweighs any restriction on the sellers from maximising their gains and thus, some fundamentals of economics must also be subsided at the cost of greater benefit of mankind.

Report written by Pratyush Chaturvedi

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