Question

Before economic reforms were implemented in the countries of Eastern Europe, regulation held the price on bread substantially below equilibrium. When reforms were implemented, prices were deregulated and the price of bread rose dramatically. As a result, the quantity of bread demanded fell and the quantity of bread supplled rose sharply. is this what is happening  in the united states with gasoline?,if so, what would be the result if the north america oil companies did not receive various federal subsidles to the supply and demand curves?

I want the answer without graph

Answer 1

A subsidy in the market acts like a price ceiling where the price is kept low artificially here, the demand is more than the supply at that cost, to increase the supply the government pays the extra amount to the supplier.

If the government takes away the subsidy at this price the supply will decrease and that will put upward pressure on the price. the supply will be low and to increase the supply the price will rise. it will rise to the point where the demand and the supply of the gasoline are equal. this will cause a movement along the demand and curve and the supply curve. not shifting any of the curve.