What was a consequence of Nixon's oil price controls in 1971?

What was a consequence of Nixon's oil price controls in 1971?

• A. Higher production and lower consumption
• B. Lower production and higher consumption, causing gasoline shortages
• C. No change in production
• D. Decreased gasoline prices

Answer: (B)

When prices are kept below what the market would set, the signals that guide supply and demand get distorted. Oil and gasoline producers earn less per unit, so there’s less incentive to invest in extraction and production. At the same time, the lower price doesn’t curb demand as much as the price would in a free market, so consumption remains strong. Put together, production falls while demand stays relatively high, creating shortages. Nixon’s 1971 oil price controls kept gasoline prices from rising to reflect scarcity. That reduced the incentive to pump oil and refined products, lowering production, while demand stayed high, leading to gasoline shortages and long lines at stations.

When prices are kept below what the market would set, the signals that guide supply and demand get distorted. Oil and gasoline producers earn less per unit, so there’s less incentive to invest in extraction and production. At the same time, the lower price doesn’t curb demand as much as the price would in a free market, so consumption remains strong. Put together, production falls while demand stays relatively high, creating shortages.

Nixon’s 1971 oil price controls kept gasoline prices from rising to reflect scarcity. That reduced the incentive to pump oil and refined products, lowering production, while demand stayed high, leading to gasoline shortages and long lines at stations.