The Invisible Hand

In a market economy, market forces set a price at which consumers are willing and able to purchase all the goods they want and producers are able to sell all they want. When a government sets a price below the market-determined price (i.e., sets a price ceiling), shortages occur and create nonprice distributional mechanisms such as black markets and waiting in queues. 

To explore how benefits and costs arise with all methods of allocating goods and services, you are presented with the following problem-solving scenario in this project: 

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 trying to decide which consumers should be given high, medium, or low priority when gasoline is allocated. The group listens to messages from consumers who are concerned that shortages may occur with price controls and explain why they need gasoline. 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 why price controls might cause problems in a free market system. Finally, he asks the policy group to write an op-ed piece announcing the Energy Department’s plan for implementing price controls.