DECA Marketing Cluster Practice Exam

What does price gouging typically occur after?

1. A decrease in demand

2. A regulatory change

3. A natural disaster or supply shock

4. A planned sale event

The correct answer is: A natural disaster or supply shock

Price gouging typically occurs after a natural disaster or supply shock because these situations create an urgent need for specific goods and services, while the supply of those items may be significantly limited. When consumers face uncertainty or scarcity, some sellers may take advantage of the situation by raising prices dramatically, which is referred to as price gouging. Natural disasters, such as hurricanes or floods, disrupt local economies and can cause physical damage to infrastructure, resulting in shortages of essential items like food, water, fuel, and shelter. During such emergencies, consumers may be desperate to obtain these necessary resources, and sellers that engage in price gouging exploit this urgency by significantly increasing prices, often beyond reasonable market levels. In contrast, a decrease in demand typically leads to lower prices as sellers try to entice consumers. A regulatory change could introduce new market conditions, but would not necessarily lead to price gouging unless it impacts supply and demand in a way that creates scarcity. A planned sale event is organized to intentionally reduce prices and encourage consumer spending, which is the opposite of price gouging. Thus, the best context for price gouging is indeed a natural disaster or supply shock.