After the OPEC oil embargo in the 1970s, price controls were placed on gas markets that did not...

Question

After the OPEC oil embargo in the 1970s, price controls were placed on gas markets that did not allow price to rise to the market-clearing level. Gas shortages resulted as did black markets. Use the analysis provided in Chapters 1- 6 on the use of price controls to discuss whether price controls likely hurt or helped consumers and the economy. Consider the following:

·Who is helped and harmed by price ceilings?

·Had gas prices been allowed to increase sharply, would we have made changes in our economy faster? At what cost?

·How does the elasticity of demand and supply impact the degree to which price and quantity would change in the gasoline market?

Komalavalli · Accepted Answer

After the Organization of the petroleum exporting countries (OPEC) oil embargo in 1970, price control placed on the gas markets which didn’t allow the price of gas to rise to the market price level is known as price ceiling. Price ceiling is the maximum price that a business person or firm can charge their consumer. In this kind of situation firms tend to supply less compared to the market equili
ium price this leads to create shortage of gas in the market. Such kind of shortage will lead to create a black market in the nation. Usually in black consumer will buy gas at higher price compared to the price ceiling level of price. This price control will harms the people who is economically backward and can’t afford products at higher price level. It affects the efficient level of resource allocation in the economy. A sharp rise in gas price in the economy would lead to affect the economic activity by creating burden on consumer and the firms that depends on logistic and the chain of transportation, because transports needs gasoline as its input. It will affect the economy worldwide. The price elastic demand for gasoline is inelastic because...

After the OPEC oil embargo in the 1970s, price controls were placed on gas markets that did not allow price to rise to the market-clearing level. Gas shortages resulted as did black markets. Use the...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment