Why do price ceilings cause shortages? What is a black market and why might it alleviate shortages?

Price ceilings are something that is set in place by the government which limits the price of a certain good or service. So if a price ceiling is put into place it will most likely cause a shortage, because if gas costs $7.00 a gallon, and the government limits the price to only $1.75 a gallon people will want more gas. People will want more gas, because it is naturally cheaper and if gas is cheaper and people want the gas they will eventually run out of gas. A black market is where goods and services are sold illegally normally for a higher price. Black markets could alleviate shortages, because if all of the gas is gone and you can only buy it from the black market for say a price of $25 a gallon. So the black markets knows not as many people will buy gas for $25 a gallon vs. gas for $1.75 a gallon, so it makes for shortages to be relieved and harder for the black markets to go into a shortage.

How do gasoline companies answer the fundamental economic questions when price controls are not in place?

Gasoline companies answer the fundamental economic questions when price controls are not in place by many different factors. The different factors come from: what to produce, how to produce, and for whom to produce. Gasoline companies ultimately decide how much to charge for a gallon of gas, because everyone needs gas so whether or not it's $1.00 or $4.00 a gallon people will still buy it. The gasoline companies produce gas and the government doesn't have a huge regulation in the gas industry. Gas prices are also controlled by the cost of oil and as the cost of oil fluctuates, the cost of gas will change with the cost of oil. Gasoline is a natural resource and a fossil fuel so companies don't really make it, they just find it and sell it, and sometimes add some chemicals to the gasoline mix to enhance the efficiency of the gas. Gas is something that is produced for almost everyone that owns a car, and it is somewhat true that the people with the most money get the most gas, but that only really applies to if we have a shortage. Gas companies have the control over how to control the price of gas, and most of the factors that go into creating and finding the gas.