The Invisible Hand
U.S. Department of Energy Secretary Les Singer asks his policy group for help in planning how to implement legislation on gasoline price controls that was passed by Congress. He asks the policy group to start the process by listening to messages from consumers of gasoline who are concerned that shortages may occur with price controls. Then the policy group members decide which consumers should be given high, medium, or low priority when gasoline is allocated. The situation soon is complicated when a critical Op-Ed piece appears in a petroleum industry newsletter and reporters start asking questions about possible negative effects of price controls. Secretary Singer, realizing he doesn’t know enough about economics to respond to these concerns, asks his policy group to write a memo to him explaining how a free market operates and why price controls might cause problems. Finally, he asks the policy group to write an Op-Ed piece announcing the Energy Department’s plan for implementing price controls. To solve this problem, students must grapple with the benefits and costs of government-determined prices and allocations, as well as market-set prices and allocations.
Concepts to Learn
- Black Market
- Demand
- Equilibrium Price
- Equilibrium Quantity
- Market
- Market Economy
- Nonprice Rationing
- Opportunity Cost
- Price
- Price Ceiling
- Price Control
- Scarcity
- Shortage
- Supply
- Tradeoff
- Unfettered Market
Posted by Justin Wells : 05/17/2009