After the Arab oil embargoes, there was concern about the impact of higher gas prices on the low-income worker. The government imposed price controls on oil to protect the poor from this situation. Explain the inefficiency of this price ceiling and how taxes, rather than prices, could be used to solve the problem
By preventing the price of gas from rising to its new equilibrium, gas could not be allocated to those most willing to pay. Hence, long lines formed and gas was rationed by waiting time rather than solely by price. In some cases, producers were able to extract higher amounts from those most willing to pay. By selling only to "regular customers" or to those willing to buy overpriced car washes, the wealthy could get gas while the poor did without or experienced very long waits. The alternative is to let the market price the gas and use the tax system to redistribute income to the poor to offset their loss in purchasing power due to higher gas prices. This allows rich and poor to put their money where they get the most marginal utility.
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Cobb-Douglas production function have decreasing returns to scale.
Answer the following statement true (T) or false (F)
In monopolistic competition, each firm has a demand curve with a ________ and there ________ barriers to entry into the market
A) negative slope; are no B) slope equal to zero; are no C) negative slope; are D) slope equal to zero; are
Identify each of the following acts as representing either saving or investment
a. Fred uses some of his income to buy government bonds. b. Julie takes some of her income and buys mutual funds. c. Alex purchases a new truck for his delivery business using borrowed funds. d. Elaine uses some of her income to buy stock in a major corporation. e. Henrietta hires a builder to construct a new building for her bicycle shop.
The external costs of alcohol consumption are related to, among other things, death and injury related to auto accidents caused by drunk drivers. These costs have been estimated to be about 47 cents per ounce of alcohol consumed. Taxes on alcohol amount to 23 cents per ounce. This suggests that alcohol consumption is (i) greater than the efficient or optimal amount; (ii) should be reduced to zero to eliminate the externality.
A. i and ii B. i not ii C. ii not i D. neither i nor ii