Relationship between Price Equilibrium and the Market

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4a. Research and discuss the following topic: Price should reflect the value that consumers are willing to pay versus prices should primarily just reflect the cost involved in making a product or service. Take a position and support your answer with valid research information. According to economic theory, price equilibrium is established by the market, depending upon consumer demand, supply, and the ability of sellers to make a fair profit. However, during times of scarcity, sellers can accrue a much greater amount of power than they would under normal circumstances. A good example of this is gas 'gouging.' As prices go up, sellers may set prices artificially high. When a product is a necessity, consumers have little choice but to pay the exorbitant price. There are few substitutes for transportation by car in most areas of the country. Price gouging for food can also take place during times of extreme privation, such as during wartime. Under these circumstances, it is immoral to charge high prices simply because sellers can afford to do so. With this in mind, the government has occasionally set price ceilings, when the invisible hand of the market cannot determine a reasonable price for a necessity. For example, the state of Indiana has passed a gas gouging law entitled C 4-6-9.1 Chapter 9.1. Price Gouging in Declared Emergencies which states that "price gouging means charging a consumer an unconscionable amount for the sale of fuel... [When] (1) the amount charged

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