Level 2 · Module 1: Supply, Demand, and Price · Lesson 4
Why Prices Go Up in Emergencies
During an emergency — a hurricane, a blackout, a sudden shortage — prices for essential things often rise sharply. Some of that rise is the real marginal value changing. Some of it is ordinary human greed. Telling the difference, and deciding what to do about it, is one of the hardest questions in economics and the one where reasonable people most often disagree.
Building On
We learned that water is worth more in a desert than in a kitchen. Emergencies create instant deserts — and when they do, marginal value spikes. This lesson asks what people should do with that fact.
Why It Matters
Emergencies are not theoretical. Somewhere in the country this year, a hurricane will knock out power, a snowstorm will close roads, a fire will evacuate a town, a supply chain will break, or a factory will shut down. In every one of those moments, the price of something essential will jump — ice, gasoline, water, batteries, generators, plywood, hotel rooms. You will feel a gut reaction when you see it. Your gut reaction will be that something wrong is happening.
This lesson asks you to slow down and look at that gut reaction carefully. Part of what you are feeling is right. Part of it may be missing something. Economists, lawyers, and politicians have been arguing about emergency prices for hundreds of years without fully settling the question. The disagreement is not because some of them are evil — it is because both sides of the argument are pointing at real things.
The goal of this lesson is not to give you the answer to ‘is this fair?’ The goal is to give you the two sides of the argument so clearly that you can form your own conclusion and recognize it when you see it in the real world. That is worth more than being handed an answer, because the real world will keep throwing this at you for the rest of your life.
And there is one more reason it matters: someday, you may be the person with the generator, the ice, the bottled water, the hotel room. How you price it in a crisis will say something about who you are. That is not a small thing.
A Story
Two Hardware Stores and a Hurricane
A small coastal town was in the path of a hurricane. The storm was going to arrive in about twenty-four hours. Everyone in town knew it was coming because the weather reports had been warning about it for days. By the morning of the storm, the shelves in stores were getting empty. Two things, especially, were running out: plywood (to cover windows) and bottled water.
There were two hardware stores in town. The first was owned by a man named Lou, who had run the store for thirty-two years. The second was owned by a man named Henry, who had moved to town six months earlier and was trying to build his business.
Lou had about three hundred sheets of plywood in his back warehouse. He had bought them at his regular wholesale price, roughly fifteen dollars a sheet. His normal markup would put them on his shelves at about twenty-five dollars each. That morning, as the lines outside grew longer, Lou kept the price at twenty-five dollars. A family asked him if he would go higher — they were willing to pay fifty dollars a sheet. Lou said no. He kept selling at twenty-five until he was out, and then he put up a hand-written sign saying ‘sold out, good luck, stay safe’ and closed the store so he could go help his neighbors board up their windows.
Henry had about two hundred sheets of plywood in his warehouse, bought at roughly the same wholesale price. That morning, he walked to the front of his store and changed the price sign. Twenty-five dollars became fifty dollars became seventy-five dollars. By the time the sun came up, Henry’s plywood was seventy-five dollars a sheet, three times its normal price. A family came in and bought ten sheets at seventy-five each. Henry made a lot of money that day. He sold every sheet he had.
Now here is the argument, and it matters that you hear both sides.
The case for what Henry did goes like this: when the price of plywood jumps to seventy-five dollars, people do not buy more than they need. A family that needed five sheets bought five, not fifteen. This meant that the very last person in the line — the old woman at the end, the young father who was running late from work — actually had a chance of finding plywood. At twenty-five dollars, the first customers had stocked up and the store had emptied by eight in the morning. At seventy-five dollars, there was still some left by noon. The high price, in a strange way, had helped the late arrivals. That is called ‘rationing by price,’ and it is a real thing.
The case against what Henry did goes like this: plywood is not a luxury. Plywood is the difference between a home with windows intact and a home with windows blown out by a hundred-mile-an-hour wind. Charging seventy-five dollars a sheet for plywood means a family with little money cannot afford to protect their home, while a rich family can easily. The high price rations plywood not by need but by who already has money. And on top of that, Henry did not do anything extra to deserve seventy-five dollars. He paid the same fifteen dollars for each sheet he always does. He is just taking advantage of a moment when people have no other option. That is called ‘price gouging,’ and many places have laws against it for exactly that reason.
Both of those arguments are pointing at real things. The first one is about how a higher price reduces hoarding and helps later buyers. The second is about how a higher price decides who gets helped based on wealth instead of need. Neither side is simply wrong.
Lou, who kept his price at twenty-five dollars, made less money that day. When asked later why he did it, he shrugged. “I’ve known these people for thirty years. I’ll see them at church next Sunday. I didn’t want to spend the rest of my life being the man who tripled his price the day of the hurricane. It wasn’t a calculation. It was just a person I didn’t want to become.”
Henry, on the other hand, was technically doing what economics textbooks say a store should do. He was also never really welcomed in the town after that. Two years later, his store closed. Lou’s store was still open.
Vocabulary
- Price gouging
- Raising the price of an essential good sharply during an emergency. Many places have laws against it, but the term itself is controversial because some people argue that higher prices during shortages are actually helpful.
- Rationing
- Deciding who gets how much of a scarce thing. Rationing by price means ‘whoever pays most gets it first.’ Rationing by other means could be first-come-first-served, by need, by lottery, or by government order.
- Hoarding
- Buying much more of something than you need in a shortage, often because you are afraid the thing will run out. Hoarding makes the shortage worse.
- Reputation
- What people believe about you, built from the things they see you do. Reputations built or destroyed in a single crisis can last for decades.
- Ethics
- The study of what is right and wrong in how we treat each other. Ethics and economics overlap the most during emergencies, because the numbers and the rightness sometimes disagree.
Guided Teaching
This lesson is different from the others in this module because it does not have a clean answer. The other lessons are about how prices work. This one is about what happens when how they work and what feels right drift apart.
Ask: if you had been the family looking for plywood that morning, which store would you have been happier to find — Lou’s at twenty-five, or Henry’s at seventy-five? Which would you have felt better about the next week?
Now flip the question. Suppose there were only ten sheets of plywood left in the whole town. If the price stays at twenty-five, then whoever gets there first takes them all — and many of those first arrivals might already have had enough plywood from last year’s storm. If the price jumps to seventy-five, then only people who really urgently need plywood will pay. Now the ten sheets might end up with ten different families who really need them, instead of one family who grabbed five.
That is the heart of the case for higher prices in an emergency. It is not that the store owner deserves more money. It is that higher prices discourage hoarding and help the scarce supply reach more people. Some economists spend their whole careers defending this view.
But notice something. That argument works better when the thing is a luxury. It gets harder when the thing is essential, like plywood in a hurricane or insulin in a diabetic emergency. A high price on a luxury just means rich people get it first — which is uncomfortable but not deadly. A high price on an essential can literally decide who is safe.
The case against raising prices in emergencies is not that high prices never help. It is that high prices are a clumsy tool for deciding who deserves help. When the thing in question is survival, deciding by ‘who has more money’ is a kind of answer, but it is not the answer most people would pick if they sat down and thought about it.
So what is the right thing to do if you are Lou or Henry? Here is the honest answer: there isn’t one formula. There is a tradeoff, and reasonable people line up differently. But there is a smaller, simpler thing this lesson wants you to remember: whatever you decide about price in an emergency, you have to live with afterward. Henry was technically right, in one narrow economic sense. Lou was technically ‘irrational,’ in that same narrow sense. And Lou’s store was still open five years later while Henry’s was not. There is more than one kind of winning.
The last idea is the most important one. Some laws say it is illegal to raise prices during an emergency above a certain level, even if economics would say it is efficient. Those laws exist because most communities have decided that reputation, justice, and human dignity matter during crises in ways the price system alone cannot capture. You can disagree with those laws — smart people do — but you should understand why they exist before you take a side.
Pattern to Notice
This week, watch for news stories about shortages — gas shortages, hotel shortages after evacuations, food supply problems. Pay attention to how prices behave and how people talk about the prices. You will see all three voices in those stories: the economist defending higher prices, the customer calling them unfair, and the store owner trying to figure out what to do. Each one is pointing at a real thing.
A Good Response
A student who learns this well can hold two ideas at once: that higher prices can serve a function during a shortage, and that they can still be wrong in a way price theory cannot explain. They stop demanding a simple answer to emergency pricing and start asking about tradeoffs. They also start noticing that reputation is a form of payment too — one that Lou understood and Henry did not.
Moral Thread
Justice
Justice is the muscle that says ‘this is technically allowed, but it is not right.’ When someone doubles the price of bottled water in front of a family fleeing a hurricane, the price is a real market price and it is also a moral problem. Holding both of those at once is the beginning of justice.
Misuse Warning
A student can latch on to the economic argument and conclude that anyone who raises prices in an emergency is just following the market, and therefore cannot be criticized. That is a misreading. Economics explains why a higher price can help distribute scarce goods — it does not hand you a moral shield to hide behind when the community is suffering. Conversely, a student can latch on to the ethical argument and conclude that anyone who raises prices is evil. That is also wrong. A store owner whose own costs have gone up has to raise prices or go out of business, which helps nobody. Be careful not to take a clean side on this one. The whole point is that the question is honestly hard.
For Discussion
- 1.In the story, who made the ‘right’ choice — Lou or Henry? Is your answer the same if you’re a rich customer, a poor customer, or a store owner?
- 2.Why might high prices during a shortage actually help some late-arriving customers, even though they sound unfair?
- 3.What is the difference between pricing a luxury in an emergency (a souvenir, a fancy meal) and pricing an essential (water, medicine, plywood)?
- 4.Lou said he didn’t want to ‘be the person’ who tripled his price the day of the hurricane. What does that tell you about what a reputation is worth?
- 5.Do you think laws should ban price gouging? What should count as price gouging — any increase, or only certain kinds?
- 6.Can you think of a time when you or someone in your family paid more than usual for something during a shortage? How did you feel about the person selling it?
- 7.If you ran a store and a crisis hit, what would you do with your prices — and how would you explain your choice to your customers?
Practice
The Price Gouging Debate
- 1.Find a real news story from the last five years about price gouging during a disaster — a hurricane, a pandemic, a wildfire, a supply chain shock. Read the whole thing.
- 2.On one piece of paper, write the strongest case FOR the higher prices, using the arguments from this lesson. Assume you are an economist trying to be honest.
- 3.On a second piece of paper, write the strongest case AGAINST the higher prices, again as honestly as you can.
- 4.Now write a third paragraph: your own view, acknowledging what the other side got right. Do not pretend the other side is stupid.
- 5.Share all three with a parent. Notice that the paragraph that was hardest to write was probably the one you disagreed with most. That is usually where the most learning hides.
Memory Questions
- 1.What is ‘price gouging,’ and why is the term itself controversial?
- 2.What is the argument for letting prices rise during an emergency? Give at least one reason.
- 3.What is the argument against letting prices rise during an emergency? Give at least one reason.
- 4.Why did Lou’s store survive and Henry’s close, if Henry was ‘technically right’ in the economics sense?
- 5.What is the difference between rationing by price and rationing by need?
- 6.Why is this question harder when the thing in the shortage is essential instead of a luxury?
A Note for Parents
This is the most mature lesson in Module 1 and one of the hardest to teach fairly, because most parents have an instinct on this question one way or the other and it leaks into the conversation. Try, this once, to present both sides without tilting. The point is not to produce a child who agrees with you — it is to produce a child who can actually hold the tradeoff in their head. If you strongly favor one side, share that at the end as your view, not as the answer. Let them watch you take a position instead of handing them one. That is also how they will learn to form their own positions on questions economists have been arguing about for two hundred years.
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