Given the following information about the market for gasoline (quantities in mil
ID: 1176592 • Letter: G
Question
Given the following information about the market for gasoline (quantities in millions):
Price per gallon
Quantity Demanded
Quantity Supplied
$9
50
200
$8
75
175
$7
100
150
$6
125
125
$5
150
100
$4
175
75
$3
200
50
$2
225
25
Graph the demand and supply curves for gasoline (You do NOT submit the graph for grading) and answer the following. You must include a brief explanation.
Price per gallon
Quantity Demanded
Quantity Supplied
$9
50
200
$8
75
175
$7
100
150
$6
125
125
$5
150
100
$4
175
75
$3
200
50
$2
225
25
Explanation / Answer
i)
The quantity demanded and supplied are equal at $6/gallon.
Equilibrium Price = $6
Equilibrium Quantity = 125gallons.
ii)
At $8/gallon, the quantity demanded is 75gallons while quantity supplied is 175gallons.
Hence, a surplus of 100gallons exists.
iii)
At $4/gallon, the quantity demanded is 175gallons while quantity supplied is 75gallons.
Hence, a shortage of 100gallons exists.
iv)
If there is an increase in supply, with demand being constant, the equilibrium price of gasoline would fall while the equilibrium quantity would increase.
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