During the imposition of price controls in the 1970s, long gasoline lines were common. In the absence of price controls, markets would have eliminated such excess demand by
A) allowing the price to rise, so gas was rationed to those willing to pay the most for it.
B) increasing the gap between supply and demand.
C) allowing price to decline, so the poor could afford to buy more gas.
D) mandating a 50-mile-per-hour speed limit to reduce consumption.

Question

Quizplus · Accepted Answer

Price controls create an artificial shortage of goods as they prevent the market from reaching an equilibrium price. In this case, the shortage of gasoline led to long lines because demand exceeded the supply available at the controlled price. In a free market, the price would have risen, which would have reduced demand to match the available supply. Those who were willing and able to pay the higher price would have gotten the gas they needed, while those who were not would have been priced out of the market. This would have eliminated the excess demand and the long lines.

During the Imposition of Price Controls in the 1970s, Long