In 1993, the Mississippi River flooded, causing widespread devastation and leavi

Question

In 1993, the Mississippi River flooded, causing widespread devastation and leaving<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Midwesterners desperate to acquire basic necessities such as food and ice (for food

storage). Profiteers soon emerged, selling ice for as much as $50 per pound. Editorialists

and politicians decried this price-gouging and called for an end to do it.

a. Suppose that the authorities had effectively prohibited price-gouging. What would

have been the effect on the amount of ice brought into the affected area?

b. Suppose that the authorities had effectively prohibited price-gouging and somehow

managed to ensure that their action had no effect on the quantity of ice in the area.

What would have been the effect on social welfare?

c. Suppose that a pure altruist in the affected area had come into possession of a small

amount of ice. Explain why he might have charged $50 per pound for it, even if he

was completely unconcerned with his own welfare.

d. Do you think it would have been a good idea to prohibit price-gouging?

Explanation / Answer

a) the amount of ice bought into the affected area would increase.
b) social welfare would have been improved as the flood victims can get ice to store their food.
c)because he could use that $50 for buying food or for helping others.
d)yes,because if it wasnt prohibited only few of them who could afford it would get ice and the remaining would starve for food

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