In 1974 the cutback in oil production by the OPEC cartel created shortages of oil in the world market.?

Question

In the United States price controls prevented oil prices and thus gasoline prices from rising to world market levels. In Europe and Canada oil and gasoline prices rose to world market levels. In the United States lines of cars formed at service stations, while there were no lines in Canada. Why?

Answer 1

The market mechanism worked where it was left alone, while it failed where it was impaired.

A price ceiling (such as in the US) keeps prices below the market level, meaning that prices cannot signal the shortage, and hence quantity demanded remains unaffected. This is nice when there's no change in supply, but in time of drastically reduced supply, this translates to not-every-consumer-gets-the-amount-they're-willing-to-buy-at-the-price. The US solution was rationing. You lined up. You got your two gallons. You drove home. Rationing is not as effective a means of switching consumption bundles (ie, from a large vehicle to smaller more fuel-efficient vehicle) as is the price mechanism.

The Canadian and European solutions were far more effective because the market price mechanism compelled consumers to switch consumption. This was especially easy in Europe, where mass transit is essential, and personal vehicles are for the most part unnecessary for commuting.

Answer 2

Is this a question for your Economics class? Think about it, how much gas would you buy today if it were $5 a gallon? Probably less than if it were $2 right? Maybe you'd find a way to carpool or maybe you pull that motorcycle out of your garage or maybe you'd not take that road trip. When supply is cut short, price goes up naturally until people buy exactly what is available. When the government pushes prices down, there is no incentive for people to buy less.

Some gas stations would run out of gas and people would line up at the ones that had it.

Answer 3

The US faced a sudden supply disruption that the other countries did not. Besides cutting production OPEC embargoed all shipment to the US. Of the nine members of the European Economic Community, only the Dutch faced a complete embargo (having voiced support for and supplied arms to Israel and allowed the Americans to use Dutch airfields for supply runs to Israel), the United Kingdom and France received almost uninterrupted supplies (having refused to allow America to use their airfields and embargoed arms and supplies to both the Arabs and the Israelis), whilst the other six faced only partial cutbacks.

Answer 4

Because in the US the policy is to exaggerate events, have disasters on TV news every day, keep people scared and make them live in fear.
Or simply the Canadians didn't know how to make a line.

Answer 5

Because they regulated the days when you could and couldn't get gas. If your license plate had an even or odd number depended on the day you could fill up.