Chapter 4: Problem 14

Gas lines in the 1970 s were caused by ______. a) price floors b) price ceilings c) both price floors and price ceilings d) neither price floors nor price ceilings

Short Answer

Expert verified

Gas lines in the 1970s were caused by \(b)\) price ceilings.

Step by step solution

Define Price Floors and Price Ceilings

Price floors are minimum price levels set by the government below which prices cannot fall. Price ceilings are maximum price levels set by the government above which prices cannot rise.

Explain the Effects of Price Ceilings on Supply and Demand

When a price ceiling is set below the equilibrium price, it results in a shortage of goods. This is because producers are unable to meet consumer demand at the artificially low price. In this scenario, consumers queue up for the limited supply, forming lines.

Explain the Effects of Price Floors on Supply and Demand

When a price floor is set above the equilibrium price, it results in a surplus of goods. This is because producers supply more than consumers are willing to buy at the artificially high price. In this scenario, there would not be lines, but rather excess inventory that producers are unable to sell.

Analyze the 1970s Gas Crisis

In the 1970s, the oil crisis led to a supply shortage, and governments imposed price ceilings on gasoline. This caused a shortage in supply as oil-producing countries could not meet consumer demand at the artificially low price. As a result, consumers formed lines to try to obtain the limited supply of gasoline.

Identify the Correct Answer

Based on the explanation of the gas crisis in the 1970s and the effects of price floors and price ceilings, it is clear that gas lines were caused by price ceilings. Thus, the correct answer is: b) price ceilings