In Favor of Price Gouging?

I have long felt that anti-gouging laws are misguided fix to a problem. The best example I have heard is a story of three college kids who lived outside the strike-zone of a tornado. They rented a refrigerator truck, and some chainsaws then filled the truck with bags of ice. Because the roads were in such bad shape, and they had to keep cutting down trees that were in their way it took the group the better part of a day to make it into the town center. However once they got there they started selling the bags of ice for about double what ice would normally cost.

As more and more people heard about the ice a long line formed in front of the truck. As the story was described to me most people would get to the front of the line and when they heard the price the people would complain that the students were gouging but still ask for 3-4 bags of ice. Eventually the town's police came, locked the truck and arrested the students for price-gouging.

All this did was prevent the people who were waiting for the ice to not be able to get any at all. Additionally since people, even people who complained about the high price, still bought multiple bags it was obviously worth buying to them at that price, and as more people outside realized they could make money they would be more likely to bring in even more ice, reducing the shortage. Contrarily if the students knew that they would only be able to charge the normal price for a bag of ice they would never have bought any and the shortage would have been worse. If your mother needed ice for her Diabetes meds wouldn't you rather pay $8 for a bag of ice than not be able to get any at any price?

Incidentally this story came from an episode of Russ Robert's Podcast EconTalk www.econtalk.org that was released about a year and one half ago. If anyone wants to know more specifically I can check just ask, but regardless if economics interests you I highly recommend the podcast.

TL;DR: "price gouging" is actually an effective way to help alleviate shortages, especially in disaster zones where there is little or none of a necessity such as ice, available.

By allowing the price of water to go up, it would encourage more people from outside to fulfill the increased demand. By limiting prices, the government is not just telling sellers they can't sell a product at a higher price, they are telling people that they cannot buy something they are willing to pay for. Prices are a very efficient way to allocate scarce resources, in this case potable water.

Isn't price gouging just one of the (albeit extreme) consequences of the market? Supply plummets, demand skyrockets.

Spot on, reminds me about this story:

http://abcnews.go.com/2020/Stossel/story?id=1954352&page...

Synopsis - guy from Kentucky buys 19 generators and rents a uhaul to go and sell them 600 miles away in Mississippi during Katrina. People line up to buy them because all the stores are sold out. Police arrest the man and confiscate the generators. This guy was doing his 19 potential customers a gigantic service and only wanted 100% return on investment, he probably could have sold them for more than that, but instead NO ONE gets a generator. Absolutely asinine, the guy is a hero not a criminal.