Problem
Until the early 1970s, before the gas crises and shortages, gas prices were not usually displayed in front of a gas station. Some consumers were willing to drive into several gas stations to find the lowest price. Some were not willing to do this, but would buy from the first gas station they drove into.
1) Of the models discussed in Chapter 13 (on Information), which one most closely applies to gasoline shopping in the time period up until the early 1970s? Explain. The Tourists and Natives Model
2) Based on this model, do gas stations earn positive profits in equilibrium? Explain.
3) Based on your answer in part (a) above, what would you expect to happen to gas prices if cities required gas prices to be publicly viewable from the street with big signs? Explain by specific reference to your selected model.