Economic question???

Question

When disasters hit an area, the cost of everythings seems to go up immediatelyL food, water, housing, gas, and so forth.

1. Why this phenomenon may be a good thing??

2. What would happen if prices did not go up??

Answer 1

natural disasters like heavy rain and flood will lead to spoilage and damage of goods...

when goods are damaged there is scarcity for goods.. When there is scarcity, the demand for goods increase.. but eventhough the demand increases the supply remains limited. (refer law of supply and law of demand)

People are wanting to buy the goods . In such situation the price has to be increased upto a certain limit.This will reduce the demand for the product. The reduction in demand will be more for luxury goods. The demand for neccesitties will not come down totally but the quanitiy of demand will be reduced. People will prefer to buy a smaller quanitity of the good because of the high rates. This helps in distributing the goods that are limited in supply.

If the prices do not go up .. all the people will want to buy the goods at the prevailing price and this will not satisfy the demand as the supply will be limited ...

The price of goods will go up because of other factors too..

Lets expalin it with the help of an example...

India exports 30000 kg of rice to other countries. If a natural disaster hits the country.. a lot of the already produced goods will b destroyed.. now lets imagine dat only 15000 kg of rice is left.. But the demand will still be the same..

The price will be increased so that a person who demanded 10 kg of rice now demands only 5 kg...

At the same time the demand for luxuries will stop or will be reduced to a great extent.

In a situation like this factors like transportation costs of goods, production cost etc. goes up.. and this will increase the price of the goods.

and it is very much necessary for the prices to go up to keep the functioning of the economy normal.