Question

1. What is the Law of Demand? Explain the difference between a change in demand and a change in the quantity demanded. Provide an example from the gasoline market.
2. Other than price, what are the determinants of supply? Provide three examples from the consumer market for gasoline.
3. What does market equilibrium mean? Provide two examples of how market equilibrium in the consumer market for gasoline market could change.

Answer 1

Law of demand: A change in price of a good leads to a change in the quantity demanded of the good in opposite direction.

Change in demand: When non price factors affect consumer demand for a good. This leads to a shift of the demand curve,to either left or right

Change in quantity demanded: When changes in price lead to movement along demand curve, either upwards pr downwards

Example:

Increase in consumer income will increase consumer purchasing power. This will shift demand curve of gasoline to the right, leading to increase in both price and quantity of gasoline sold

Fall in price of gasoline will lead to a downward movement along demand curve, leading to increase in quantity demanded of gasoline

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Determinants of supply:

Cost of inputs or raw materials (cost of cylinder where gasoline is stored and transported)

Technological advancement (improvement in technology which helps produce more gasoline at lower cost)

Number of producers in the market (as more producers enter the market, output produced and supplied will increase)

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Market equilibrium takes place at the point demand and supply curves intersect. At this price, quantity demanded equals quantity supplied.

Two examples:

Consumer income increases, shifting demand curve to the right, leading to increase in price and sales of gasoline

Technological advancement takes place which increases production of gasoline. Supply curve shifts to right, leading to a fall in price of gasoline and Increase in sales