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July 29, 2010

Controlling gas prices

Many people would like to see gas prices controlled by either federal or state government. They think gas prices are too vital to most household budgets to allow them to go to lofty levels. What would be the economics of such an idea?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the first thing people need to remember when they go to the gas station to buy gas and see a price they don't like is don't blame that gas station operator. Ultimately the price of gas is based on the price of oil. And so what is happening in the oil market in terms of prices always shows up at the gas pump maybe two or three weeks later.

"Now if you were to have a control always on gas prices the concern that economists have always expressed is that if you set gas prices under what the market would indicate, then you can run into shortages. And we actually saw some of that in North Carolina a couple of years ago.

"And if you remember ... and I think you do because we are the same age, in the 1970s we had a form, if you will, of gas price control in the U.S. and we did have shortages. In fact one way the government solved the shortage problem was to have odd/even days for buying gasoline based on the digit of your license plate. You couldn't buy gas whenever you wanted to.

"And so economics point out that could be a cost of permanently controlling gas prices -- that gas would not be as plentiful, especially when there were problems in the oil market. And number two, you couldn't always get it when you want it."

Posted by deeshore at July 29, 2010 09:40 AM