The graph above shows the market for gasoline after the government imposes a pri

Question

The graph above shows the market for gasoline after the government imposes a price ceiling of $3.50 a gallon. With the price ceiling in place, the amount of gas that people would want in this market would be 550 gallons, but the gas station owners are willing to supply only 300 gallons.

Which of the following are likely to occur in this market?

Choose one or more:

A. a black market for gasoline

B. a surplus of gasoline available

C. gas stations offering better-quality gasoline

D. long lines for gasoline

Explanation / Answer

There will be shortage of gasoline in the market due to binding price ceiling in place. The shortage of 550-300 = 250 gallons will mean that the demand for 250 gallons will remain unsatisfied. They will compete to get the gasoline with price ceiling in place. The black market will develop where the gasoline will be sold at a higher price and the consumers who were not able to buy at the ceiling price will now buy gasoline. There are highly likely chance that a black market will develop for gasoline.

The correct option should be A.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.