Describe the effect of each of the following events on either the demand or supply of...

Describe the effect of each of the following events on either the demand or supply of gasoline in the USA. Further indicate the likely direction in the amount of gasoline exchanged AND the expected market price (both) when: a. domestic incomes fall. b. the price of electrical automobiles falls. c. A new shale oil field is discovered and put into service. d. The average price of rice falls in Japan. (Provide answers to all parts of the question)

Solutions

Expert Solution

a. domestic incomes fall.

The quantity demaned of gasoline falls as income falls. Income is a determinant of demand. The demand curve shifts to the left. Quantity supplied remains the same. The equilibrium price decreases and equilibrium quantity also decreases.

b. the price of electrical automobiles falls

Electrical automobiles is a substitute good. Changes in the prices of substitute goods is a demand determinant. If the price of electrical automobiles falls, then the quantity demanded of gasoline falls. Quantity supplied remains the same. The equilibrium price decreases and equilibrium quantity also decreases.

c. A new shale oil field is discovered and put into service.

Supply increases as new resources are discovered. Quantity supplied increases and equilibrium price falls. Equilibrium quantity increases. Demand remains the same.

d. The average price of rice falls in Japan.

No change in quantity demanded or supplied.

Rahul Sunny answered 1 year ago

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