Question

In: Economics

After reading the analysis of your peers, reply to at least to 1 peer by providing...

After reading the analysis of your peers, reply to at least to 1 peer by providing a theoretical proof (using your textbook and/or materials posted in Canvas) that would either (1) further cement their argument or (2) negate their argument.

Notably, by mid-May 2020, amid the COVID-19 Pandemic, gas prices fell to its lowest level since 2016, reaching as low as $1.85 per gallon on average in the United States. This reflects demand rather than supply in action. During the pandemic, the governments in different states focused on adopting restrictions affecting the people's movement from one location to another. Gas is for the movement of people. The lockdown rules and restrictions forced people to stay in their homes, thus, creating a historic plunge in demand. The decrease in the quantity demanded forced the prices to drop. Graphically, as the prices decline and quantity demanded decreases, the demand curve shifts to the left, showing such decreases in prices and the quantity demanded. In the stated period, most people in the world were not moving. Gas, of course, is for moving. Most economic analysts did project the demand for gasoline to decrease by about 30 percent, which would be the worst dive ever in humanity's history.

As depicted in the above discussion/illustration, prices affect the quantity demanded. When there is a change in the quantity demanded, suppliers respond by changing the prices. For example, a positive change in the quantity demanded increases the prices of the products or services at the consumers' disposal. On the other hand, a substantial dip in quantity demanded initiates a decrease in the price; thus, the demand curve's essence of shifting to the left. This is what happened to the price of the gas during the mid-May following the government's directives to restrict the movement of the people as a platform to minimize the spread of the virus.

Solutions

Expert Solution


Shifts in demand

The position of the demand curve will shift to the left or right following a change in an underlying determinant of demand.

Increases in demand are shown by a shift to the right in the demand curve. This could be caused by a number of factors, including a rise in income, a rise in the price of a substitute or a fall in the price of a complement.

Demand schedule

A shift in demand to the right means an increase in the quantity demanded at every price. For example, if drinking cola becomes more fashionable demand will increase at every price.

Increases in demand

An increase in demand can be illustrated by a shift in the demand curve to the right.

Decreases in demand

Conversely, demand can decrease and cause a shift to the left of the demand curve for a number of reasons, including a fall in income, assuming a good is a normal good, a fall in the price of a substitute and a rise in the price of a complement.

Demand schedule

For example, if the price of a substitute, such as fizzy orange, falls, then less cola is demanded at each price, as consumers switch to the substitute.

Thus, I would like to support my peer that if the price of the product decreases, the demand increases and vice versa. As in the case of gas during lockdown .







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