Wednesday, October 31, 2007

A tank of gas costs as much as a Banana?

In Venezuela a gallon of gasoline costs 7 cents a gallon, due to government price controls (see related NY times article here). In Monday's post I discussed how price controls can lead to shortages. One way to get around this is if the government continues to supply the product at a loss. The policy is costing the government 7 Billion dollars a year. Since, many Venezuelans cannot afford cars, the policy also only generally benefits the rich. Although President Chavez has tried to change the policy their appears to be too much support for it to make any changes.