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

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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
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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?...
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