A major hurricane damages many oil refineries, which increases the market price of gasoline from $3.50 to $5 per gallon. The Attorney General threatens legal action against gas station owners who raise prices above pre-hurricane levels, causing gas station owners to reluctantly sell gas for $3.50 per gallon. At $3.50 per gallon, shortages cause buyers to wait in line for 2 hours. If the average purchase is 15 gallons and buyers value their time at $20 an hour, is the Attorney General helping?

Question

Quizplus · Accepted Answer

The Attorney General's actions may seem helpful in keeping gas prices low, but in reality, they are causing shortages and long wait times for buyers. Additionally, the lower price of $3.50 per gallon is still more expensive when factoring in the time cost of waiting in line for 2 hours. If gas were sold at the market price of $5.00 per gallon, buyers would have a guaranteed supply and could choose to purchase less if they were unwilling to pay the higher price. Therefore, option A is correct.

A Major Hurricane Damages Many Oil Refineries, Which Increases the Market