How has government intervention in the gasoline market typically affected market participants?

• A. It always results in lower prices and increased supply for all consumers.
• B. It can lead to price controls that may cause shortages or surpluses.
• C. It eliminates all competition among gasoline producers.
• D. It guarantees that market equilibrium is reached without any distortions.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the role of government intervention in markets, which often includes policies like price controls (price ceilings or price floors), taxes, subsidies, or regulations.
2. Step 2: Recognize that price controls, such as setting a maximum price below the equilibrium price (price ceiling), can lead to shortages because the quantity demanded exceeds the quantity supplied at that price.
3. Step 3: Conversely, price floors set above the equilibrium price can cause surpluses, where the quantity supplied exceeds the quantity demanded.
4. Step 4: Analyze how these distortions affect market participants: consumers may face shortages or surpluses, producers may reduce supply or increase production depending on the control, and overall market efficiency is impacted.
5. Step 5: Conclude that government intervention does not always lead to lower prices or increased supply; instead, it can cause unintended consequences like shortages or surpluses, disrupting the natural market equilibrium.