Answer to Question #188402 in Economics of Enterprise for kavisha

Question

Demand for hand sanitizer is surging around the globe as the new coronavirus spreads, prompting retailers to ration supplies and online vendors to hike prices. Sales of hand sanitizers and similar products have swelled across several international markets since the COVID-19 outbreak began in January. The virus, which originated in China, has now spread to more than 60 countries. According to data published Tuesday by market research firm Kantar, U.K. hand sanitizer sales saw a year-on-year increase of 255% in February. Meanwhile, British shoppers were buying 7% more liquid hand soaps and spent 10% more on household cleaners compared to February 2019. (Source: CNBC, 3rd March 2020

 

ii. Due to high demand of hand sanitizer, it will lead to increases of price by producers. Based on your opinion, what should a government do to control the price of hand sanitizer to keep hike during the pandemic.

Answer 1

The demand for sanitizer has increased due to other factors than its price. Therefore, in this case, a rise in the price of sanitizer will not have any effect on its price because its demand became inelastic due to Covid-19. 

Government can use a "price ceiling" in order to keep the price of essential commodities under control because the price ceiling is the maximum price that a producer can charge legally. Generally, these prices are affordable to the people. Thus, the government should fix a price for the sanitizer so that producer could not charge higher prices. The government intervention will prevent the hike in prices and it will remain affordable to buy the sanitizer. 

The government should enforce price ceiling policy