Consider the market for gasoline. Buyers
a.
would lobby for a price floor, whereas sellers would lobby for a price ceiling.
b.
and sellers would lobby for a price ceiling.
c.
and sellers would lobby for a price floor.
d.
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
The correct answer and explanation is:
The correct answer is:
d. Buyers would lobby for a price ceiling, whereas sellers would lobby for a price floor.
Explanation:
The market for gasoline involves buyers (consumers) and sellers (producers or suppliers). The interests of these two groups are often in opposition because buyers want lower prices, while sellers want higher prices to maximize profit.
Price Ceiling
A price ceiling is a government-imposed limit on how high a price can be charged for a good or service. Buyers would support a price ceiling because it prevents gasoline prices from exceeding a certain level, making it more affordable. For example, if the price of gasoline were to rise significantly due to factors like increased demand or reduced supply, consumers would benefit from a price ceiling that keeps prices lower than the equilibrium level. However, price ceilings can lead to shortages if the price is set below the equilibrium, as suppliers may reduce production due to insufficient profit incentives.
Price Floor
A price floor is a government-imposed limit on how low a price can go. Sellers would lobby for a price floor because it ensures that the price of gasoline does not drop below a certain level, protecting their revenue. For instance, if market conditions caused a surplus of gasoline, leading to a significant drop in prices, suppliers could face financial losses. A price floor would help prevent this by maintaining a minimum price level. However, price floors can lead to surpluses if set above the equilibrium price, as consumers may not purchase as much at higher prices.
In conclusion, buyers advocate for a price ceiling to keep gasoline affordable, while sellers favor a price floor to secure their earnings. These preferences reflect their distinct economic interests in the market dynamics of gasoline.