Environmental Economics

From the WSJ's Micro Weekly email:

New York's Economics Blackout
by: Editorial Staff
Nov 05, 2012
Click here to view the full article on WSJ.com

TOPICS: Price Control, Supply and Demand

SUMMARY: Cuomo vs. Christie on gasoline shortages. "Public jobs would be so much easier if politicians could repeal the laws of economics, and some of the more obtuse keep trying. Today's lesson comes from New York and New Jersey, both of which are suffering from severe gasoline shortages a week after superstorm Sandy…. Republican Governor Chris Christie imposed gas rationing over the weekend via an emergency executive order…. Drivers with license numbers that end in odd numbers can buy on odd days, and vice versa for those with even plates…. That was in notable contrast to Governor Andrew Cuomo's New York, where 730,000 homes remain blacked out and the gas supply is also deficient. 'Fuel is on the way. Do not panic. We don't need anxiety. We don't need the lines,' the Democrat said Saturday, before disclosing a plan to distribute 'free' gasoline that came courtesy of the federal government…. Mr. Cuomo apparently didn't learn in freshman economics that when something is 'free,' you often get a surge of demand for it. He created the very panic he deplored."

CLASSROOM APPLICATION: The article fits well in an analysis of supply and demand. Begin with an equilibrium in a gasoline market. Set a price ceiling equal to this equilibrium price. Then, decrease supply. With the price ceiling in place, the market experiences a shortage.

QUESTIONS:
1. (Advanced) What properties about the prices charged by gasoline retailers caused the gasoline shortages following superstorm Sandy in New York City and the surrounding New Jersey counties?

2. (Introductory) Could gasoline price changes have been taken to reduce or eliminate these shortages?

3. (Advanced) Was Governor Christie's response to gasoline shortages better than Governor Cuomo's?

Reviewed By: James Dearden, Lehigh University

Hey, cool, I did exactly that (the "classroom application") on Tuesday.