A Major Hurricane Damages Many Oil Refineries, Which Increases the Market

A major hurricane damages many oil refineries, which increases the market price of gasoline from $3.50 to $5 per gallon. The Attorney General threatens legal action against gas station owners who raise prices above pre-hurricane levels, causing gas station owners to reluctantly sell gas for $3.50 per gallon. At $3.50 per gallon, shortages cause buyers to wait in line for 2 hours. If the average purchase is 15 gallons and buyers value their time at $20 an hour, is the Attorney General helping?

A) No, paying $92.50 at $3.50 per gallon is more expensive than $75 at $5.00 per gallon.
B) Yes, paying $52.50 at $3.50 is cheaper than $75 at $5.00 per gallon.
C) Yes, gas is cheaper at $3.50 per gallon because the waiting costs keep gas prices low.
D) No, $5.00 per gallon would insure that buyers could always buy as much as they want.

Correct Answer:

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