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. Trickle-Down Economics 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. The similarity between water and
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