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Chapter 3: Q 1 (page 77)

Suppose the price of gasoline is \(1.60 per gallon. Is the quantity demanded higher or lower than at the equilibrium price of \)1.40 per gallon?

Short Answer

Expert verified

Equilibrium isthe state in which market supply and demand balance each other, and as a result prices become stable.

Step by step solution

01

Step 1. Given information

The current price of gasoline is $1.60.

The equilbriumprice of gasoline is $1.40.

02

Step 2. Calculation

Since $1.60 per gallon is above the equilibrium price, the quantity demanded would be lower at 550 gallons and the quantity supplied will be at 640 ie. higher. Thus lower Qd and higher Qs would be a surplus in the gasoline market of 640-550= 90 gallons.

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Most popular questions from this chapter

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b. The winter is exceptionally cold.

c. A major discovery of new oil is made off the coast of Norway.

d. The economies of some major oil-using nations, like Japan, slow down.

e. A war in the Middle East disrupts oil-pumping schedules.

f. Landlords install additional insulation in buildings.

g. The price of solar energy falls dramatically.

h. Chemical companies invent a new, popular kind of plastic made from oil.

What is the difference between the supply and

the quantity supplied of a product, say milk? Explain

in words and show the difference on a graph with the

supply curve for milk.

Let’s think about the market for air travel. From August 2014 to January 2015, the price of jet fuel increased

roughly 47%. Using the four-step analysis, how do you think this fuel price increase affected the equilibrium price

and quantity of air travel?

Suppose there is a soda tax to curb obesity. What

should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.

Why would a free market never operate at a quantity greater than the equilibrium quantity?
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