ThoughtCo

Some critics of price gouging argue that, because suppliers are often limited in the short run to whatever inventory they have on hand, short-run supply is perfectly inelastic (i.e. completely unresponsive to changes in price, as shown in the diagram above). In this case, an increase in demand would lead only to an increase in price and not to an increase in the quantity supplied, which critics argue simply results in the supplier profiting at the expense of consumers.

In these cases, however, higher prices can still be helpful in that they allocate goods more efficiently than artificially low prices combined with shortages would. For example, higher prices during peak demand times discourage hoarding by those who happen to get to the store first, leaving more to go around for others who value the items more.

Another common objection to price gouging is that, when higher prices are used to allocate goods, rich people will just swoop in and buy up all the supply, leaving less wealthy people out in the cold. This objection isn't entirely unreasonable since the efficiency of free markets relies on the notion that the dollar amount that each person is willing and able to pay for an item corresponds closely to the intrinsic usefulness of that item for each person. In other words, markets work well when people who are willing and able to pay more for an item actually want that item more than people who are willing and able to pay less.

When comparing across people with similar levels of income, this assumption likely holds, but the relationship between usefulness and willingness to pay likely changes as people move up the income spectrum. For example, Bill Gates is probably willing and able to pay more for a gallon of milk than most people, but that more likely represents the fact that Bill has more money to throw around and less to do with the fact that he likes milk that much more than others. This isn't so much of a concern for items that are considered luxuries, but it does present a philosophical dilemma when considering markets for necessities, especially during crisis situations.