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NATURAL DISASTERS AND PRICE CONTROLS
After hurricane Katrina hit New Orleans and surrounding areas in August of 2005, gasoline prices in Alabama and elsewhere shot up (reportedly, to over $5 per gallon in one case in the Atlanta area.) National politicians, governors, even our own state Attorney General railed against what they called â€œprice gougingâ€, and threatened dire consequences for anyone engaging in such practices. President Bush even likened price gougers to the New Orleans looters!
NOW ANSWER THE FOLLOWING QUESTIONS (all 5 parts):
A) Explain briefly how gasoline gets from the world oil market to your local gas station. Explain how hurricane Katrina affected this supply chain, in the short run and in the longer run. (Since itâ€™s hard to put a supply-and-demand diagram in an email, just describe in words which curve(s) shifted, and in what direction.)
B) Explain how the public reacted to the situation, and how this affected the demand side of the market. Discuss the short run and the longer run.
C) Discuss how the shifts in supply and demand affected the market clearing price in the short run.
D) What do the politicians mean by the term â€œprice gougingâ€? Does this term have a precise meaning in economic theory?
E) Say the legislature enacts price controls (that is, a legal maximum price below the market clearing level) on gasoline. Discuss how this affects the marketâ€™s ability to reach equilibrium. Would such price controls be helpful to consumers trying to purchase gasoline?
Note: Google or other search engines may give you references to useful background material on part A. Be sure to cite your sources!
Also note: this is not intended to be a full research paper. A short paragraph for each question will be sufficient.