Question

Suppose government imposes price ceiling on gas. How can this price control lead to long lines at the gas pump? Identify winners and losers of this policy. What can the government do to solve the problem of “long lines”? Show graphs.

Answer 1

Here, the market was at an equilibrium at a point A. the price in the market is 100 and the quantity is 75. After the government put a ceiling at 75 the demand will increase to 100 and the supply will decrease to 50. the remaining 50 will be the shortage causing the shortage in the market. the winner in this policy is those people who can get gas at a price of 75 and the looser are those who are out of fuel and the sellers in the market.

To eliminate the shortage and long lines in the market. the government should lift the ceiling in the market.