Explain how the market for gasoline would react to this price ceiling if a global shortage of oil sent the equilibrium price of gasoline to $3.50 a gal-lon. Would the U.S. gasoline market be efficient?
What will be an ideal response?
If the equilibrium price of gasoline is $3.50 a gallon, then a price ceiling of $3.00 a gallon results in a shortage. The quantity of gasoline demanded at $3.00 a gallon exceeds the quantity supplied. A black market is likely to develop, in which consumers buy gasoline at prices higher than the price ceiling. In addition, a great deal of additional search activity arises as drivers look for gas stations that are open and willing to sell gasoline. The market is inefficient because the marginal benefit of a gallon of gasoline exceeds the marginal cost and so there is a deadweight loss.
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In what type of market do these gas stations operate? What determines the price of gasoline and the marginal revenue from gasoline?
What will be an ideal response?
Identify the correct statement from the following
a. A worker's wage line and productivity line over his lifetime are parallel to each other. b. The wage line of a worker's lifespan is an upward sloping straight line. c. The productivity line of a worker's lifespan rises at a decreasing rate. d. A worker's wage is always equal to his productivity.