We regain price theory in our series on price theory with Professor Brian Cutsinger. You can see all Cutsinger issues and solutions by subscribing to the Econlog RSS feed.
Please share your proposed solution in the comments. Professor Cutsinger will appear in comments in the coming weeks and will soon post his proposed solution. I hope the graph is in your Poyro and in the long live price theory!
Question: Suppose the market price of gasoline is $5.00 per gallon. Politicians deal with their constituents who believe such prices are outrageous and impose price controls of $2.00 per gallon. At this price, I want to buy 9 gallons of gas per week, but gas stations now only sell 5 gallons a week. There is a shortage.
Assume you will have to wait in line to buy gas. Doing so will grant you the right to purchase gasoline at a controlled price of $2.00 per gallon. Also, assume you are willing to pay up to $6 per gallon. Finally, let’s assume that wages are $10 per hour.
How long do you wait in line to buy gasoline? What is your total gasoline spend every week? What is the price per gallon? Has price control reduced gasoline prices?
