E202Exam1.9

E202Exam1.9 - equilibrium quantity is unclear (could rise...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
7. (4 pts) How would a rise in the price of crude oil affect the market supply for gasoline? Does the supply curve shift left or right and why? What will happen to the equilibrium price and quantity of gasoline if, in addition to the rise in the price of crude oil, there is an increase in population? Answer : Crude oil is an input. Higher input prices shift the supply curve to the left (supply decreases). An increase in population shifts the demand curve to the right (demand increases). The decreased supply raises price and reduces quantity while the increased demand increased both price and quantity. The combined effect is that equilibrium price rises and the effect on
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: equilibrium quantity is unclear (could rise or fall). 8. (20 pts) Consider the effects of a disruption in refining following the recent hurricanes: Price of gasoline Quantity demanded of gasoline Quantity supplied of gasoline Reduced quantity supplied of gasoline 1.00 50 35 20 2.00 45 45 30 3.00 40 55 40 4.00 35 65 50 ($ per gallon) (millions of gallons per month) a. Use the above table to graph demand, supply, and a reduction in the supply of gasoline. b. What is the original equilibrium price and equilibrium quantity? What is the new equilibrium price and equilibrium quantity? How have price and quantity changed?...
View Full Document

This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

Ask a homework question - tutors are online