Suppose the equilibrium price of gasoline is $2.00 per gallon and that at this price, the average person purchases 10 gallons on each visit to the gas station. Now assume that the maximum lawful price for gasoline is set by the government at $1.50 per gallon. At this ceiling price, there will be an excess demand for gasoline.
Assume that this excess demand is rationed by waiting in line. If the typical person has to stand in line for an hour to purchase 10 gallons of gas, and if that person’s time is worth $10 per hour, what is the full or effective price per gallon of gasoline in the presence of price controls?