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American Focus > Blog > Economy > Gas Shortages: Cutsinger’s Solution – Econlib
Economy

Gas Shortages: Cutsinger’s Solution – Econlib

Last updated: May 8, 2025 12:01 pm
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Gas Shortages: Cutsinger’s Solution – Econlib
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Question: Imagine a scenario where the market price of gasoline skyrockets to $5.00 per gallon. Politicians, eager to appease their constituents who are outraged by this price hike, impose a price control, capping it at $2.00 per gallon. You, in this economic landscape, wish to purchase 9 gallons of gasoline weekly; however, gas stations now only permit you to buy 5 gallons per week. Clearly, a shortage is at play.

To acquire gasoline, you must endure a waiting line, which grants you the right to buy at the controlled price of $2.00 per gallon. Furthermore, you are willing to pay as much as $6 per gallon, and your wage stands at $10 per hour.

How much time will you spend waiting in line for gasoline? What will your total weekly expenditure on gasoline be? What is the effective price you pay per gallon? Did the intervention of price control genuinely decrease the price of gasoline?

 

Solution: This inquiry underscores the critical need to assess the comprehensive cost of a commodity—not merely its monetary price but also the opportunity cost associated with the time spent obtaining it.

With a price control enforced at $2 per gallon and your willingness to pay up to $6 per gallon, there exists a $4 disparity that encapsulates the value you assign to your waiting time. Given your hourly wage of $10, we can deduce that you would be prepared to wait approximately 24 minutes per gallon (4/10 hours). For the 5 gallons you can purchase, you would end up waiting a total of 2 hours each week.

See also  Concerns About Tariffs - Econlib

Your total weekly expenditure comprises:

  • Monetary outlay: 5×2=10 dollars
  • Opportunity cost of time: 2×10=20 dollars

Thus, your total expenditure accumulates to $30 per week.
Dividing this by the 5 gallons gives an effective price of $6 per gallon.

Although the nominal price of gasoline dropped from $5 to $2, when factoring in the costs associated with waiting, the effective price has risen to $6. This demonstrates that the price control did not genuinely lower the actual cost of gasoline; rather, it increased it.

TAGGED:CutsingersEconlibgasShortagessolution
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