Assume gasoline is sold in a competitive market, the equilibrium price is $50 per barrel, and the equilibrium quantity is 1000 b
arrels.
(a) Using the numerical values above, draw a correctly labeled graph of the gasoline market and show each of the following.
(i) The equilibrium price
(ii) The equilibrium quantity
(b) At a price of $40 per barrel, will there be a surplus or a shortage in the market? Explain.
(c) Assume new oil wells are discovered. On your graph from part (a), show how this change will affect the equilibrium price and quantity in the market for gasoline.
(d) Assume instead there is an increase in the price of gasoline-operated automobiles. How will this change affect the market for gasoline? Explain.
(e) If both changes in part (c) and part (d) occurred simultaneously, what will happen to the equilibrium price and quantity of gasoline?
(a) Using the numerical values above, draw a correctly labeled graph of the gasoline market and show each of the following.
(i) The equilibrium price
(ii) The equilibrium quantity
(b) At a price of $40 per barrel, will there be a surplus or a shortage in the market? Explain.
(c) Assume new oil wells are discovered. On your graph from part (a), show how this change will affect the equilibrium price and quantity in the market for gasoline.
(d) Assume instead there is an increase in the price of gasoline-operated automobiles. How will this change affect the market for gasoline? Explain.
(e) If both changes in part (c) and part (d) occurred simultaneously, what will happen to the equilibrium price and quantity of gasoline?
1 answer:
Answer:
(a) Attached is the graph depicting the equilibrium price at $50 per barrel.
(b) A shortage will occur.
(c) The attached graph illustrates how demand shifts as a result of increased supply from the newly discovered oil well.
(d) Should gasoline vehicle prices rise, demand will decrease while supply remains steady, leading to a drop in the equilibrium price.
(e) Consequently, there will be an additional decrease in the price per barrel.
Explanation:
The equilibrium price
(a) Attached is the necessary graph.
(b) According to the graph, at a $40 per barrel price, the market will experience a shortage as the funds available will exceed the total sale price of the barrels, because at the equilibrium price, the total money in the market matches the total price for the barrels supplied, reflecting how much money consumers are ready and willing to spend on a barrel.
(c) If new oil resources are discovered, the supply of barrels will outnumber the available funds for purchasing them, leading to a decrease in the equilibrium price.
(d) An increase in the price of gasoline-operated cars will cause demand to shift downwards while supply stays unchanged, which will lower the equilibrium price.
(e) If new oil sources are found and the price of gasoline vehicles rises, this will further push down the price of oil per barrel.
You might be interested in