Question

Price gouging can take place only when (LO6) a) there is a natural disaster b) buyers are poorly informed about market conditions c) some buyers are willing to pay the asking price, however high d) the forces of supply and demand are not operating

Short answer

Price gouging can take place only when some buyers are willing to pay the asking price, no matter how high (option c). This condition is crucial for price gouging to occur, as it enables sellers to exploit the demand-supply imbalance and increase prices beyond what is considered reasonable.

Step-by-step solution

Understanding Price Gouging

Price gouging typically happens when there is a sudden increase in demand for a product or service, and the supply is limited. This could be due to several factors such as scarcity, natural disasters, or manipulation. It is important to understand the options given and evaluate their impact on price gouging.

Option A: Natural Disaster

Natural disasters can certainly create an environment where price gouging is possible. During such situations, the demand for essential goods and services increases rapidly, while the supply may be disrupted. However, it is not the only factor that can lead to price gouging.

Option B: Poorly Informed Buyers

Poorly informed buyers may contribute to price gouging by not being aware of the actual market prices. However, this situation alone cannot be the sole cause of price gouging.

Option C: Willingness to Pay

If some buyers are willing to pay the asking price, no matter how high, then sellers might be encouraged to increase their prices beyond what is considered reasonable. This condition is crucial for price gouging to occur, as sellers can exploit this willingness to pay high prices and take advantage of the demand-supply imbalance.

Option D: Forces of Supply and Demand

For price gouging to take place, there must be imbalances in the forces of supply and demand. If both are operating correctly, prices will typically adjust according to the market equilibrium, making price gouging unlikely. Given these explanations, the correct answer is: c) some buyers are willing to pay the asking price, however high. This condition is essential for price gouging to occur, as it enables the seller to increase the price to an unreasonable level and exploit the demand-supply imbalance.