Question

During a natural disaster, such as a hurricane, the demand for hotel/motel rooms in an area can suddenly surge, driving up the price of a room. If the government enacts price controls (such as anti-gouging rules), what will MOST LIKELY result?

Answer 1

Answer:

Rooms will be hard or impossible to find.

Explanation:

Price controls are implemented by government to reduce adverse price increase on the consumer. Suppliers can use situations such as disaster to raise prices and make more profit.

Price gouging occurs when the price of a good is increased as a result of shortage.

If the government implements price controls, suppliers will be unwilling to give out rooms at lower prices. This results in scarcity of rooms.

Eventually because of high demand, some consumers will pay more for rooms using black market channels.

Answer 2

Answer: Rooms will be hard or impossible to find.

Explanation: Increase in the demand of commodities above the estimated need or supply will often to price increase which could be attributed to room prices during times of nature disaster when people are in dire need of shelter. However, government intervention through policies which prohibits raising prices above reasonable level at times like this will often lead to hoarding or scarcity of the demanded items or services. In this scenario, anti gouging policies will most likely result in hotels being reluctant to offer their rooms due to the price control hence, leading to scarcity.