Question

Concemed about the political fallout from rising gas pices, the U.S. government decides to impose a price celing on gasoline of $3.00 a gallon It the oil producing nations increased production and drove the equil brium price to $3.00 a gallon. would the US. gasoline market be efticient?

If the os producing nations increased production and drove the equilibrim price to $3.00 a gallan. of gasoline would emerge The U.S: maket for gasoline would be

A. a surplus and a black matket woukd emerpe, inellicient
B. nether a supplus nor a shorlage; effichent
C. a suiplus, eflicient
D. a thortage and a black market would emorge, eficient E. a shortage and a black market would emerge. Inellicient

Answer 1

If the government price ceiling and the equilibrium price set by oil producers both are at $3.00 a gallon, the gasoline market would be efficient with no surplus or shortage. However, if a price ceiling is set below the equilibrium price, it would lead to a shortage and potential black market activity, representing an inefficient market.

Step-by-step explanation:

If the U.S. government imposes a price ceiling on gasoline at $3.00 a gallon, and oil-producing nations increase production to the point where the equilibrium price is also $3.00 a gallon, the U.S. gasoline market would be neither in surplus nor shortage; it would be efficient. This is because the market price (determined by supply and demand) equals the government-imposed price ceiling.

However, if the imposed price ceiling was lower than the equilibrium price, for example $1.30 as stated in the critical thinking question, there would likely be a shortage. A shortage occurs when the quantity demanded exceeds the quantity supplied at the given price, which could lead to black market activities as consumers vie for the limited supplies. In such a scenario, the market would be inefficient because the price ceiling would disrupt the natural equilibrium of the market, leading to underproduction and missed opportunities for consumer- and producer-surplus gains.