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Intellections Discussion

Pandemic Pricing: Why Prices Need to Rise During Emergencies

How do supply and demand influence prices?


When demand exceeds supply, product is less available or not available. This demand for product encourages manufacturers to increase prices in part to offset their increased cost to run production into overtime to supply the increased demand. However, the tendency to increase prices can get out to the point where consumers hoard for fear of continued increase in prices. This leads to increased shortages which further leads to increased pricing. The remedy for this cycle is for consumers to decrease purchase when the price becomes too expensive. When shelves stay stocked, prices come down.

During emergencies, increased demand for goods and services often causes prices to rise. Though they may seem cruel, higher prices discourage hoarding and encourage manufacturers to increase production. Price controls that stop the prices of essential products from growing in emergencies lead to shortages that leave everyone worse off. We find that when the government stays out of the markets during droughts, the private sector can adjust the market availability of products.