The price of gasoline is now exorbitant. A good scheme for solving the problem is for consumers to boycott gasoline, driving down its price; when the price is low, consumers can resume their higher purchases.True or False? Explain your answer.
Congratulations to Jennifer Wolfe for being the first to provide a correct answer to this week's question.
4 comments:
False. When customers begin to boycott gasoline, the price will be driven down. However, once people start buying again, demand will increase, causing the price to go back up.
Hi, Dr. Delemeester,
This is Qi Wu. In my point of view, it is true.
When the price of gasoline is changing, the demand curve does not shift and the supply curve will shift to the right. Then, the intersection of these two lines will move to the right along the demand curve.
Therefore, the demand will increase which means customers would purchased more.
Thansk a lot!
Qi Wu
False. This is just a temperary solution. It's true that the price of the gasoline will go down after the boycott; but once consumers begin to purchase it，the price of the gasoline will definitely go up again. Moreover, this kind of boycott which disobeys the rule of the market economics will cause the social cost and the waste of the resources.
Partially false. Once customers start to execute the boycott against gasoline, the price maybe fall down temporarily because of the lower demand. However, the expectation which intends to force the price down depends on two important factors: the expectation of gasoline sellers, the patience of customers. Theoretically, when the customers begin to boycott the gasoline, sellers who want to liquidate their gasoline might sell their goods cheaper. But, because of their expectation that consumers could hardly bear such inconvenience resulting from the boycott,sellers probably would prefer to hold their gasoline, even if they would sustain a period of short of cash, until customers lose patience of boycotting so that they could sell gasoline again adding their loss during the boycott. On the other hand, assuming sellers sell their gasoline as usual, we have to consider about the Nash equilibrium of the consumers. Once some of the consumers believe that they prefer accepting the gasoline price to sustaining the inconvenience, they will trap into a prisoner's dilemma which will bring monetary losses to other participants so that the boycott gonna break down and that the price will spring back intermediately. Therefore, even consumers intend to boycott gasoline,however, they can hardly attain their purpose.
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