As Hurricane Ike crossed the gulf of Mexico and cut the shipping lanes for oil to Florida , prices for gasoline at Florida pumps rose sharply in anticipation of a temporary shortage in Florida. Many locals feel that they are being taken advantage of and some politicians have even made threats to investigate charges of gouging. Note that it is impossible to define price gauging. Price gauging joins windfall profits and excessive profits as one of our invalid and useless concepts that politicians like to use.
There are some things should know about prices.
First the price of an item is determined by the market not by the cost. The cost is important because it determines whether you can produce it for the market.
The prices act as signal to the economy as to what is needed and what is available in the economy. Right now the price spikes tell us that gasoline has become more valuable and should be used sparingly.
The prices also transmit a message to suppliers in other parts of the country that there is a dire need for gasoline in Florida and they can make a profit if they send gasoline to Florida.
The more gasoline prices rise in Florida the more outside suppliers will be motivated to ship more gasoline to Florida to alleviate the problem.
If our political leaders tell the gasoline stations they can’t raise their prices, then suppliers in other parts of the country cannot be enticed to ship gasoline to Florida. Stations could run out or simply close to avoid prosecution and this area could face a complete absence of gasoline.
Most economists agree that attempts to keep prices down during a crisis are almost always counterproductive and cause the crises to last longer than necessary.