After the Arab oil embargoes, there was concern about the impact of higher gas prices on the low-income worker. The government imposed price controls on oil to protect the poor from this situation. Explain the inefficiency of this price ceiling and how taxes, rather than prices, could be used to solve the problem.
What will be an ideal response?
By preventing the price of gas from rising to its new equilibrium, gas could not be allocated to those most willing to pay. Hence, long lines formed and gas was rationed by waiting time rather than solely by price. In some cases, producers were able to extract higher amounts from those most willing to pay. By selling only to “regular customers” or to those willing to buy overpriced car washes, the wealthy could get gas while the poor did without or experienced very long waits. The alternative is to let the market price the gas and use the tax system to redistribute income to the poor to offset their loss in purchasing power due to higher gas prices. This allows rich and poor to put their money where they get the most marginal utility.
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Dumping occurs when a foreign monopolist charges ______ price in the domestic market than/as in a foreign market.
a. a lower b. a higher c. the same d. an equivalent
Which of the following is not one of the ways that the German government ended the hyperinflation of the 1920s?
A) replacing the existing mark with a new mark B) negotiating a new agreement with the Allies (the United States, Great Britain, France, and Italy) that reduced its reparations payments C) reducing government expenditures and raising taxes to balance its budget D) raising the required reserve ratio to reduce bank loans