Examples of Price Controls .edu
Examples of Price Controls
Price controls and natural gas shortages Minimum wage Production quotas Price supports
Natural Gas
In 1954, regulation of wellhead price of natural gas introduced
In the 1970s, price ceiling became binding
In the 1980s, price controls lifted
The Natural Gas Market in 1975
p
(mcf )
$2 pmax = $1
E
Shortage
S
D
18 20 25
q (Tcf )
Welfare Effects of Price Controls
p
(mcf )
B $2 A C pmax = $1
18 20 25
q (Tcf )
Deadweight Loss and Gains From Price Controls in 1975
Consumers: gain A and lose B
A - B = 18 - 0.4 = $17.6 billion
Producers: lose A and C
- A - C = -18 -1 = $19 billion
Total: lose B and C
- B - C = -$1.4 billion
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