blanchard_ch03

# 0 the quantity of gasoline demanded decreases d 91 92

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Unformatted text preview: nge in demand, and a change in the quantity demanded. ■ 0 Price (dollars per gallon) ■ Equilibrium price 2.50 The combined effects of these two factors left the demand for gasoline the same in 2008 as it had been in 2007. The price of crude oil was the biggest influence on the market for gasoline during 2007 and 2008. 3.50 2.75 Slightly higher incomes increased demand and the gradual move toward hybrid vehicles and the increased use of ethanol decreased demand. ■ S2007 4.00 3.00 Two main factors influenced the demand for gasoline in the year to April 2008. ■ 4.50 The demand curve does not shift, but as the price of gasoline rises, the quantity of gasoline demanded decreases in a movement along the demand curve D. 73 9160335_CH03_p053-080.qxd 6/22/09 8:56 AM Page 74 CHAPTER 3 Demand and Supply 74 MATHEMATICAL NOTE ◆ Demand, Supply, and Equilibrium Demand Curve The law of demand says that as the price of a good or service falls, the quantity demanded of that good or service increases. We can illustrate the law of demand by drawing a graph of the demand curve or writing down an equation. When the demand curve is a straight line, the following equation describes it: P = a - bQ D, where P is the price and Q D is the quantity demanded. The a and b are positive constants. The demand equation tells us three things: a The law of supply says that as the price of a good or service rises, the quantity supplied of that good or service increases. We can illustrate the law of supply by drawing a graph of the supply curve or writing down an equation. When the supply curve is a straight line, the following equation describes it: P = c + dQ S, where P is the price and Q S is the quantity supplied. The c and d are positive constants. The supply equation tells us three things: 1. The price at which sellers are not willing to supply the good (Q S is zero). That is, if the price is c, then no one is willing to sell the good. You can see the price c in Figure 2. It is the price at which the supply curve h...
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## This note was uploaded on 04/04/2012 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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