Question

In: Economics

If the price of crude oil, a factor used in the production of gasoline, increases and...

If the price of crude oil, a factor used in the production of gasoline, increases and the number of people who own cars falls:"

the equilibrium price of gasoline will increase and equilibrium quantity of gasoline will decrease.

the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease.

the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will increase.

Solutions

Expert Solution

If the price of crude oil, a factor used in the production of gasoline increases, the supply curve will shift to left as the profitability will go down and if the number of people who own cars falls, the demand curve for gasoline will shift to the left. This is certain that the equilibrium quantity will fall but the change in price will depend on the magnitude of change in demand and supply curves.

Thus the correct option is

"the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease"


Rahul Sunny answered 2 years ago
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