Question: Suppose that a flood leaves a coastal city without drinkable water for several days.
a. Assuming no legal restrictions on price, use supply and demand analysis to show the expected effect of the flood on the price of bottle water.
b. Discuss the likely effects of an "anti-price gouging" law which makes it illegal for businesses or individuals to increase the price of essential goods such as water during an emergency. Use a graph to illustrate the effect of the law and consider its efficiency. Who is likely to benefit from the law and who is likely to be harmed.