How does the price cap influence a. The quantity of gasoline sold and the shortage or surplus
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a. The quantity of gasoline sold and the shortage or surplus of gasoline?
b. The maximum price that someone is willing to pay for the last gallon of gasoline available on a black market?
As gasoline prices rise, many people are calling for price caps, but price caps generate a distorted reflection of reality, which leads buyers and suppliers to act in ways inconsistent with the price cap. By masking reality, price caps only make matters worse.
Suppose that a price ceiling is set below the equilibrium price of gasoline.
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