We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed.
Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!
Question: Suppose the market price of gasoline is $5.00 per gallon. Politicians, responding to their constituents who believe that such a price is outrageous, impose a price control of $2.00 per gallon. At this price, you want to buy 9 gallons of gasoline per week but gas stations are now only willing to sell you 5 gallons per week. There is a shortage.
Assume that to buy gas, you must wait in line. Doing so gives you the right to purchase gasoline at the controlled price of $2.00 per gallon. Assume also that you would be willing to pay up to $6 per gallon. Finally, assume that your wage is $10 per hour.
How long will you wait in line to buy gasoline? What will be your total expenditure on gasoline each week? What price will you pay per gallon? Did the price control reduce the price of gasoline?
