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Principles of Economics- Mankiw (5th) 117

Principles of Economics- Mankiw (5th) 117 - CHAPTER 6 S U P...

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CHAPTER 6 SUPPLY, DEMAND, AND GOVERNMENT POLICIES 121 oil raised the cost of producing gasoline, and this reduced the supply of gaso- line. As panel (b) shows, the supply curve shifted to the left from S 1 to S 2 . In an unregulated market, this shift in supply would have raised the equilibrium price of gasoline from P 1 to P 2 , and no shortage would have resulted. Instead, the price ceiling prevented the price from rising to the equilibrium level. At the D URING THE SUMMER OF 1999, THE EAST coast of the United States experienced unusually little rain and a shortage of water. The following article suggests a way that the shortage could have been averted. Tr i c k l e - D o w n E c o n o m i c s B Y T ERRY L. A NDERSON AND C LAY J. L ANDRY Water shortages are being blamed on the drought in the East, but that’s giving Mother Nature a bum rap. Certainly the drought is the immediate cause, but the real culprit is regulations that don’t allow markets and prices to equalize demand and supply.
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