Banking service chronicle Monthly Magazine by bsc academy-subscribe published this is article page no 58 many of us remember the oil shortages of the late seventies. they caused more than just the inconvenience of occasional gasoline rationing. several elderly people actually died in the new york city area because of a lack of heating oil. some people thought it would only get worse and we would run out of oil completely before long. interestingly at the same time gold and other things much rarer than oil were available to anyone who wanted them. this gives us a clue to what causes an oil shortage or any other shortage. it is usually just one thing. <b>oil shortages are caused by price controls<b> actually almost all long term shortages of basic commodities in a modern economy are caused by price controls. other than economists not many people know this. they clamor for price controls when prices rise and these controls then cause shortages. they do it in about ten ways. examples of three of these ways follow. first under price controls the law said that oil producers couldnt sell oil for more than a certain amount. of course they immediately closed wells that were producing at a cost higher than that. reducing the supply sure isnt a cure for a shortage is it? but then you wouldnt pay your boss to work for him either so why would a company pump oil at a loss? second because they had a price limit they sold more to closer customers. this saves on delivery costs and explains why heating oil was in short supply in new york which is far from the major oil fields. anyplace farther away had worse shortages. third because prices were held artificially low while some people couldnt get heating oil or gasoline others wasted gas on pleasure trips they might not have taken if the price were higher. this further reduces supply. if gas was $20 a gallon you might travel less right? the same principle is true incrementally at any price point banking service chronicle monthly magazine.
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