The vertical axis represents price, while the horizontal axis represents gallon of gasoline. The diagram above shows that if a shortage arises at the market below the equilibrium price will lead the price rises, quantity demanded decreasing and quantity supplied increasing until the equilibrium price is attained. Supply shortage can keep gas prices increasing.
When the government imposes a price ceiling, which is binding constraint on the market, is lower than equilibrium market price. At price ceiling, most of consumers want to buy quantity demanded of gallons of gasoline. Demand exceeds supply; an enforced price ceiling would lead to a shortage. Regardless of how though price ceiling is imposed to help buyers, lower prices only benefit some buyers and others can't even buy the product. Free and competitive markets provide goods effectively with prices.
Gas reputation in Hawaii will become bad and lead consumers frighten from investing the gasoline because of the price of gasoline is very expensive. Shortage can’t exist without price controls. Retailers would try to get more products by offering to pay more, or wholesalers will raises prices. Markets face a shortage problem due to producers which are not willing to sell. The shortages also lead to black market. Markets are any effective arrangement for organizing buyers and sellers together, which are often controlled by the government by laws. Black market is the market that is not under the control of government. In the black market, the sold products are illegal products. For example, certain number of consumers will not have enough oil whereas they may have particular excess. They may sell it to their close relatives or others who are critical with higher price than price ceiling because the producers are setting the price against the rules. Retailers also take advantages by buying products in the black markets.
In addition, the price ceiling established to prevent retailers from make the prices up beyond the particular amount and ripping off the consumers and taking advantages of their needs. The price ceiling has no effect when it is imposed above the market price. Price ceiling also stimulate black markets to prosper in an economy. Shortage will make the consumers to look for products in the black market even though their price is higher.
This diagram shows the inefficiency of price ceiling. With a higher price in a price ceiling, less is produced; causing less consumer surplus and producer surplus as price ceilings is indifferent to prices below the ceiling. Equilibrium prices above the ceiling would be forced to create a firm script where the demand is greater than the supply because of the price ceiling. In this case, a shortage is existed in the market. At this price level, less product is being produced, while created an area of dead weight-loss at the same time.
Otherwise, some lucky customers get to buy quantity supplied unit at the lower price of price ceiling. Other capacity consumers are disappointed. They would like to purchase at that price but they can’t find retailers willing sell gas to them. With enforced price controls, retailers use criteria other than other price to assign scarce commodity. Wholesalers may supply to their friends, long-term customers, or people of a particular race, gender, age, or religion. They may sell on their goods on the first-come, first-serve basis. Or they may limit everyone only a few gallons. Most of wholesalers and retailers will avoid the price controls. Consumers will go to retailers and tell them to pay them twice the price the government sets if they’ll sell them as much gas as they want, if they keep secret. If they are behaved in this way, shortage will not occur. Sometimes, certain numbers of retailers do not want to sell their goods even they have stocks.
If the consumers can’t afford these high priced gasolines, they may drive further to buy regular unleaded gas in markets where there is no shortage. Gas stations may lack of business in Hawaii. Some gas stations will ran out of gas and shut down rather than take the risk of purchasing gas at soaring prices only to be stuck with a glut of overpriced fuel if prices decreased or if consumers refused to absorb the extra cost that would be passed along to them. It’s also possible that suppliers may decide to impose certain fees on the sale of regular unleaded. Even though leaded gas is cheaper than unleaded gas, leaded gas should damage the mental health of kids. However, pollution of unleaded gas is quite safe and children should not affected by breathing in lead fumes. Many consumers claim that the high price of regular unleaded gasoline hurts middle and lower income individuals more than higher income drivers because peoples who are rich use cars that require a higher octane that what’s provided in regular unleaded gasoline. They formerly purchased regular unleaded gas will have to turn to an alternative fuel because they cannot buy the gasoline they used as usual before the price ceiling.
No comments:
Post a Comment