Price increases are demand or supply induced

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During the energy crisis of the 1970s, and again in the last 5 years, Congress bemoaned the “price gouging” and “windfall” profits of the major oil companies. In the 1970s Congress imposed an “excess profits tax” on these companies. It did not do so this time? What does this change show about how our understanding of the way the price system works to allocate resources has evolved? If “excess profits” are taxed away, where will oil companies get the money to fund new exploration and development of oil properties? Does it matter if these price increases are demand or supply induced?

Reference no: EM131005557

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