Preventing Price Gouging Promotes Black Markets in Florida

In many states, including Florida, it is illegal to engage in price gouging. Florida’s law penalizes a seller for any “gross disparity between the quoted price of a ‘necessity item’ such as water, and the item’s price on the date that the governor declares a state of emergency.” The penalties stay in force for 30 days from the date of the declaration. Florida is susceptible to hurricanes and in 2004, three successive hurricanes struck Florida. The demand for “necessities,” such as bottled water, gasoline, and plywood increased significantly since damages to the state’s housing, electrical grid, and businesses were extensive. With prices fixed at prehurricane levels, there was little incentive for producers and others outside the state to rush these items to Florida disaster areas.

(A) Who gains and who loses when antigouging laws contribute to shortages of items such as bottled water or plywood?