EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
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Chapter 7, Problem 12P
(a)
To determine
The
(b)
To determine
The solution to the problem in Beijing.
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You will analyze the Market for Gasoline
Step 1: Draw a supply-and-demand diagram. Price is on the vertical axis, quantity is on the horizontal axis, demand is downward-sloping, supply is upward-
sloping, and be sure to label equilibrium price and equilibrium quantity.
Step 2. Change colors! If you have a highlighter or colored pencil (crayon, sharpie, whatever).
Step 3. Show the change in demand or supply (only one curve will shift in each scenario). State if the curve decreases or increases.
Step 4: Show the new equilibrium price and equilibrium quantity.
Step 5: Repeat Steps 1-4 for each scenario. You will have a total of 4 graphs.
Scenario A: A hurricane destroys refineries that produce gasoline.
Scenario B: Consumers purchase electric vehicles that do not need gasoline.
• Scenario C: Technological innovation occurs that reduces the cost of producing gasoline.
Scenario D: Road trips become the one and only vacation option and many families opt for long-distance road trips.
●
.
Gasoline "prices at the pump" go up and down, and Oil "costs per barrel" go up or down, but they do so at different rates and even in opposite directions sometimes. We want to think that demand and supply control prices where the cost of crude oil is set by the same economic conditions that determine the gas price. What are these mismatched trends (graphs of each are shown in the following web links) telling us about how demand and supply work in the market?
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_Y35NY_DPG&f=A
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=A
Consider two types of cars:
1) Performance cars, which emphasize
good performance (good mileage, towing
capacity, horsepower, etc).
2) Luxury cars, which emphasize good
looks
Let's say that with the higher gas prices
Americans care less about how their cars
look and more about how they perform.
We'd therefore expect to see
in the market for performance cars and
in the market for luxury
cars.
demand fall; demand rise
demand rise; quantity demanded fall
demand rise; demand fall
O demand fall; quantity demanded rise
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