Question

Assuming a normal market, with a positively sloped supply and negatively sloped demand, which is initially in equilibrium. Given the situation stated below, fill in the blanks using the pull down menu. Market for GAS Significant new oil reserves are discovered domestically and a new low cost fuel injection system is developed that doubles the gas mileage of most automobiles. As a result,
(a)	Fill in the blanks: Supply will ____________
(b)	Fill in the blanks: Demand will ____________
(c)	Fill in the blanks: Equilibrium price will ____________
(d)	Fill in the blanks: Equilibrium quantity will ____________________

Answer 1

Answer a) On the basis of information provided in the question,

Supply will increase because new oil reserves are discovered.

Answer b) As new low cost fuel injection system is developed that doubles the gas mileage of automobiles therefore consumer will demand less gas as its efficiency has increased.

Hence demand will decrease.

Answer c) Due to increase in supply, supply curve will shift towards right and due to decrease in demand, demand curve will shift left.

Equilibrium price will fall.

Answer d) Change in equilibrium quantity will depend on the increase in quantity supplied and decrease in quantity demanded.

Case 1:Increase in Supply =Decrese in Demand

Equilibrium quantity will remain same as before.

Case2: Increse in supply is greater than decrease in demand

Equilibrium quantity will increase.

Case3: Increase in supply is less than decrease in demand

Equilibrium quantity will fall.