Asked by Ramanan Srinivasagopalan on May 01, 2024
Verified
If the equilibrium price of gasoline is $3.00 per gallon and the government will not allow oil companies to charge more than $2.00 per gallon of gasoline, which of the following will happen?
A) The market will be in equilibrium at a price of $2.00.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $2.00.
C) Demand must eventually decrease so that the market will come into equilibrium at a price of $2.00.
D) A nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline.
Equilibrium Price
The market price at which the quantity of goods supplied is equal to the quantity of goods demanded.
Nonprice Rationing
The allocation of goods or services using criteria other than price, such as waiting lists or lotteries.
Ration Coupons
Tokens or certificates that allow the holder to purchase a certain amount of a specific product, typically used during shortages or in a controlled economy.
- Understand the concepts of price ceilings and price floors and their effects on market equilibrium.
- Analyze the impact of government-imposed price controls on consumer and producer behavior.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
D
Explanation :
When the government sets a price ceiling below the equilibrium price, in this case at $2.00 when the equilibrium price is $3.00, it results in a shortage because the quantity demanded exceeds the quantity supplied at that price. This situation cannot be resolved through price adjustments due to the price ceiling, leading to the necessity of alternative rationing methods, such as ration coupons, to distribute the limited supply.
Learning Objectives
- Understand the concepts of price ceilings and price floors and their effects on market equilibrium.
- Analyze the impact of government-imposed price controls on consumer and producer behavior.