Asked by Smitty Hendrix on May 11, 2024
Verified
If the equilibrium price of gasoline is $4.00 per gallon and the government will not allow oil companies to charge more than $3.00 per gallon of gasoline, which of the following will happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a price of $3.00.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $3.00.
C) A nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline.
D) The market will be in equilibrium at a price of $3.00.
Equilibrium Price
The price at which the quantity of a product offered is equal to the quantity of the product in demand.
Government
The organization, or system of governance, that exercises authority and performs the functions of governing a political state or community.
- Evaluate the influence of regulatory price measures, such as upper and lower bounds, on equilibrium within markets.
- Discern and comprehend the approaches to rationing in the market that do not involve price adjustments.
Verified Answer
AB
Adrian BravoMay 12, 2024
Final Answer :
C
Explanation :
When the government sets a price ceiling below the equilibrium price, in this case at $3.00 when the equilibrium price is $4.00, it creates 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 need for alternative rationing mechanisms, such as ration coupons, to distribute the limited supply.
Learning Objectives
- Evaluate the influence of regulatory price measures, such as upper and lower bounds, on equilibrium within markets.
- Discern and comprehend the approaches to rationing in the market that do not involve price adjustments.