Asked by Brandon Schaffer on May 08, 2024
Verified
In the 1970s, the federal government imposed price controls on natural gas. Which of the following statements is true?
A) These price controls caused a chronic excess supply of natural gas.
B) Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.
C) Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium.
D) This episode of price controls was unusual, because it resulted in no deadweight loss to society.
Price Controls
Regulatory measures by which a government seeks to control the price of goods and services, either by setting maximum prices (price ceilings) or minimum prices (price floors).
Natural Gas
A fossil fuel composed primarily of methane, used as a source of energy for heating, cooking, and electricity generation.
Deadweight Loss
A loss of economic efficiency that can occur when equilibrium for a good or a service is not achieved or is not achievable.
- Comprehend how price ceilings affect the surplus of both consumers and producers.
- Acquire knowledge on the subject of deadweight loss and the reasons for its occurrence.
Verified Answer
VT
Victoria TurrellMay 12, 2024
Final Answer :
B
Explanation :
Price controls below the market equilibrium price tend to increase consumer surplus because consumers can purchase the product at a lower price than they would in a free market. However, this often leads to shortages rather than excess supply, as producers are less incentivized to supply the product at the lower price.
Learning Objectives
- Comprehend how price ceilings affect the surplus of both consumers and producers.
- Acquire knowledge on the subject of deadweight loss and the reasons for its occurrence.