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Running head: PRICE CEILINGS ON GASOLINE 1 Price Ceilings on Gasoline Franchon Hurd South University ECO2071 – Principles of Micro-Economics Dr. Joseph Brandt July 14, 2018
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PRICE CEILINGS ON GASOLINE 2 Scenario 1: Price ceilings place a legal maximum on an item (gas) but creates shortages by setting the price below the equilibrium. At the ceiling price, the quantity demanded exceeds the quantity supplied and people will ration their gas to buy less often, drive less and even carpool to save on gas if the price goes up, and as our text indicates, they will purchase more energy efficient vehicles, hybrids and electric cars. The implications on the gasoline markets will cause price gauging when the demand is high and stations can’t afford to purchase enough to sell to the consumers, so the gas they would be able to obtain, they might price it outrageously. According to Mankiw (2017), “the forces of supply and demand tend to move the price toward the equilibrium price, but when the market price hits the ceiling, it cannot, by law, rise any further”.
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