If the equilibrium price of gasoline is $4.00 per gallon and the government will not allow oil companies to charge more than $3.00 per gallon of gasoline, which of the following will happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a price of $3.00.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $3.00.
C) A nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline.
D) The market will be in equilibrium at a price of $3.00.

Question

Quizplus · Accepted Answer

When the government sets a price ceiling below the equilibrium price, in this case at $3.00 when the equilibrium price is $4.00, it creates a shortage because the quantity demanded exceeds the quantity supplied at that price. This situation cannot be resolved through price adjustments due to the price ceiling, leading to the need for alternative rationing mechanisms, such as ration coupons, to distribute the limited supply.

If the Equilibrium Price of Gasoline Is $4