I don’t think the government should mandate a set price for gasoline. Setting price is tricky. Setting the price too high will result in a surplus, and setting the price too low will result in a shortage. The graph below illustrates the relationship between price, quantity, shortage and surplus. It’s hard for government to determine where the equilibrium price for gasoline is. A government law affects the whole country, but different city or state may have a different equilibrium point. It’s hard for the government to figure out the best price for such a big market. Furthermore, the equilibrium price and quantity can change if demand or supply changes, which makes it harder to set the gasoline price at an optimal level. To make things more complicated, Gasoline is a global commodity and the crude oil price is affected by global supply and demand, which will add difficulty and uncertainty for the government to mandate a set price for gasoline. …show more content…
A natural monopoly has high fixed costs that it would be inefficient to have more than one firm to produce the product or provide the service. The water service is a good example of natural monopoly whose pipe lines and sewage systems require infrastructure design and heavy investment, and it doesn’t make sense to duplicate the products or services. Gasoline on the other hand, is not a natural monopoly because the market is big enough for multiple players to compete with one another. Gasoline is a storable commodity. Gasoline companies don’t deliver gasoline to people’s homes but move from production sites to distribution points like gas stations. Customers will then go to the gas stations to get gas when they need it. It doesn’t take high fixed costs to build up a gas station. Having one supplier for gasoline will not increase efficiency because it inhibits