Question

In the aftermath of hurricane Sandy, parts of New Jersey have been isolated so that the transportation of gasoline to consumers has become very difficult. Local authorities in various locations have tried various ways to address the situation.

a)​Using a supply and demand model, analyze the effect of the hurricane on the market for gasoline.

b)​In some places, local authorities have decided to distribute a certain amount of gasoline for free, so that every consumer had the right to a fixed allowance. Show and discuss the effects of this decision on the market.

c)​In other places, local authorities have imposed a price cap on gas. Show this in a supply and demand diagram and explain the consequences.

Answer 1

a) After the Sandy hurricane, the supply of gasoline got disturbed so the given figure the initial position before the hurricane is price P*, Quantity Q*, and equilibrium point E1.  After the hurricane, the scenario changed and the supply is less so the supply curve shift up to S1g so accordingly the price also shifted to P1, and quantity is less than the previous one Q1 and equilibrium point E2.

b) when some of the places the portion of gasoline distributed free so the supply curve of gasoline for the consumer will come down to S2g also the price comes down as the pressure on gasoline demand will less so the supplier can not charge more. So the gasoline market will get a relive of Q1 to Q2.

c) When local authority tries to put a price cap that means in figure price been fixed ar P3 so the quantity de\mand is D3g and supply of gasoline is S3g.so the gap between demand and supply. so it refers to the decrease in approachability.