Markets. To prevent gasoline prices from having devastating effects on the economy it has been proposed that all gasoline prices in the United States be fixed at the average price for the last two years. For simplicity it will be assumed that this price is $2.50 per gallon. When equilibrium prices are under $2.50 per gallon the excess payments will be kept in a government fund. When retail prices exceed $2.50 per gallon money from this fund will be distributed to pay the difference. Do you think that this plan would help the economy? What affect would the plan have on the supply and demand curves? Would gas stations and oil companies be able to stay in business?
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A very basic side effect of high gas prices is that discretionary spending goes down . Higher gas prices also mean that shoppers will drive less to conduct their purchases . According to MasterCard Advisors , online shopping in the United States during April , 2011 , grew by its fastest rate in almost four years . Studies based on search engine analytics support this , showing that search volume is directly tied to gas prices . According Marin Software , searches for online shopping increase dramatically along with gas prices . Retailers are further squeezed as they are forced to pass on the expenses associated with increased shipping costs to consumers . Anything that has to be shipped or transported – from apples to electronics – could cost more as gas prices rise ( Allcott ) . Higher gas prices are resulting in noticeable increases in some public transportation ridership . According to the American Public Transportation Association , the Raleigh – Durham – Chapel Hill region of North Carolina saw an 18 % increase in riders for the express bus that connects the three cities during April , 2011 , compared to the same month last year . Riders on New Mexico ‘s Rail Runner , a commuter train that provides service between Santa Fe and Albuquerque , increased by 14 % for the same month . Though not all cities have experienced similar growth , shared and public transportation may become more appealing if gas prices continue to rise ( Allcott ) . Do you think that this plan would help the economy ? On the surface this plan appears to be beneficial in helping the economy because it would free money up for consumers to spend their money on other things , such as faster and bigger cars or travel ; however , the fixed price brings about the possibility of creating a limited supply and gasoline is not a renewable resource and is perishable as well as other petroleum based products What affect would the plan have on the supply and demand curves ? Brownfield states that supply is essentially the ability and willingness to sel