Problem

Explain why the following statement is false: “In…

01:36

Problem 36 Medium Difficulty

Review Figure 3.4. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the gasoline market?

Answer

In the given question, legally capped means price ceiling above which a commodity cannot be sold. Government has legally capped the price of gasoline at $\$ 1.30$ which means market price is not allowed to increase above $\$ 1.30 .$ As a result, quantity demanded will be more than quantity supplied. Hence, there would be shortage of gasoline in the market. In this situation, some customers who will not able to purchase gasoline go unsatisfied. Sellers of the product will also suffer due to price ceiling. Quality of gasoline may also decline.

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Principles of Microeconomics for AP® Courses

Chapter 3

Demand and Supply

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Video Transcript

All right, We're doing question number 36. And it's asking, using this figure. Figure 3.4. What would happen if a government capped the price at $1 in 30 cents? So, Captain, the price at $1.30 would be like putting ah ah, price ceiling right here at 1 30 and price ceiling. As you know, below the equilibrium price is gonna cause disparity between quantum demanded quantity supplied. And I'm just gonna redraw this for my own. Here. 1 30 This poorly drawn daughter line is 1 40 The original equilibrium price quantity. Um, it's asking what will happen? Uh, if it's falling. If if prices forced to fall to 1 30 due to this price ceiling being captive 1 30 um, quantity supplied, it's going to fall. Remember, because Qantas supplies up here, right? Quality demanded Good increase. Um, and that's, you know, pretty logical, because if something is made to be cheaper than its, then you would normally buy it for you're gonna want to buy it more. And if something is made to be cheaper than it normally should be, um, you're gonna want to sell it less because it's less profitable for you. Make less money. Um, And because of this, since there's more demand and their supply we call a shortage, there is a shortage.

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