Katrina: A Lesson in Economics

Before Katrina, a bottle of water cost $1. People didn't really need or demand the water that much because not all of them were dehydrated at the same time. After Katrina, suddenly people found themselves in dire need of water. The supply of water decreased because of contaminated water and slow delivery of fresh water. The influx of customers to the store to get water suddenly became too much. If the price continued to stay at $1 a bottle, water will run out very quickly. Therefore, at $20, "the price gouger makes sure his water goes to those who really need it." Furthermore by charging $20, the supplier has the incentive of making profits to continue to supply water. Whenever there's an increase in demand and decrease in supply, the price goes up while the quantity goes down.

I do not agree with John Stossel's claim that the water goes to those who really need it. In fact, the water only goes to those who can afford it at $20. It is true that by acting in their own interests, the price gougers eliminate the buyers that don't need the water but they also eliminate those that do need water but cannot afford the water at the new price. For example, a family with children can buy water at $1 a bottle but at $20 a bottle they do not have money to buy it even though the children are dehydrated. However, those that do not need water but can afford it at a higher price would still be able to purchase it. In an emergency, not a lot of people have the money to participate in the market- only a few who are lucky are able to buy the things they need. To divide resources evenly would require some sort of distribution system that does not emphasize so much on money. Perhaps water would be divided by family size. Stossel's Libertarian view of laissez faire market economy does not apply here because government intervention is necessary to employ non-economic rationing.