Hurricane Sandy: Supply, Demand and Appropriate Responses to the Gas Shortage

  • Reference: ECON-420-E

  • Year: 2012

  • Number of pages: 4

  • Geographic Setting: Estados Unidos

  • Publication Date: Mar 11, 2016

  • Source: IESE (España)

  • Type of Document: Case

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Description

The Hurricane Sandy case focuses on understanding how markets work, supply and demand, market equilibrium and the role of prices as a coordination mechanism. To this end, we use the aftermath of the hurricane that hit New York and New Jersey in 2012, and in particular the gas shortages that caused long lines and frayed tempers. Hurricane Sandy interrupted gas supplies, resulting in many stations around the city shutting down when their supply ran out. New Yorkers became increasingly desperate to get hold of gas for a variety of reasons: to commute to work, to visit relatives in other areas of town or to power generators for those who had lost power. New York and New Jersey both have laws prohibiting price gouging, but as the shortage stretched on gas was being sold on Craigslist at many times its prehurricane price. Essentially, the government response to the gas shortage created a black market. Once the situation was resolved and prices had returned to normal, the two states began issuing fines to gas stations and hotels that had overcharged customers during the crisis, and Craigslist was subpoenaed for further information. Yet, from an economic point of view, the shortage was a clear-cut case of supply problems. With that in mind, perhaps the government, rather than everyday citizens, should have acted differently.

Learning Objective

This case can be used in both economics MBA courses and in more focused MBA and executive education courses on economics and supply and demand principles. There is a teaching note available for this case In the context of teaching supply and demand, the case can be used to understand how different policies applied to a supply problem can produce different outcomes. It examines the reasons for, and consequences of, a price ceiling and the role prices play when they are adjusted to reduced supply or increased demand.

Keywords

economics gas shortage Hurricane Sandy supply and demand