For each event given below, respond to the following points using the determinan

Question

For each event given below, respond to the following points using the determinants of demand and supply:

A. Determine whether demand or supply changes or if the event instead causes a change in quantity demanded or quantity supplied.
B. State whether the change is an increase or decrease.
C. List the determinant that led you to that conclusion.

1. The price of ethanol, a complement good, increases.
2. There is a large oil spill in the Gulf of Mexico.
3. Incomes fall because a recession begins and gasoline is a normal good.
4. Consumers desire more electric powered vehicles instead of gasoline powered vehicles.
5. A new production method allows for twice as much gasoline to be refined per day.

Explanation / Answer

1. The price of ethanol, a complement good, increases. A) Because ethanol is a complement good, it is being used in the production of a product (but is not the actual product). Due to the increase in price of ethanol, the producer will look for other complement goods that can act as substitutes to ethanol. Therefore, the quantity demanded for ethanol will change. B) the change will be a decrease as the producers will want less of ethanol C) The determinant will be the fact that as a complement good, there are always substitutes available 2) There is a large oil spill in the Gulf of Mexico A) The quantity supplied will change because the oil refineries will be unable to provide the oil as they have lost their reserves B) The quantity supplied will decrease (reserves are diminished) C) The determinant is that the supplier does not have the available reserves to meet quantity demanded (price will go up to reach equilibrium demand) 3. Incomes fall because a recession begins and gasoline is a normal good. A) demand will change B) quantity demanded will decrease C) since gasoline is a normal good, demand will follow their direction of income 4. Consumers desire more electric powered vehicles instead of gasoline powered vehicles A) supply will change B) supply will increase C) consumers desire more EPV so there will be an increase in supply to meet this demand 5. A new production method allows for twice as much gasoline to be refined per day A) quantity supplied will change B) quantity supplied will increase C) there is more reserves of oil, so they can supply more BO

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