Question

Assume, over time,consumer incomes generallyincrease but also that technological advancements in oil extraction lead to lower prices of crude oil (the primary input for gasoline).

If consumer incomes increase by significantly more than input prices fall, what happens to both the equilibrium price and quantity of gasoline? Remember the market is gasoline, not oil.

If you find it easier to upload a graph to support your written answer please feel free to do so.

Answer 1

When the consumer incomes generally increase, the demand increases.When technological advancements in oil extraction lead to lower prices of crude oil. The low of supply and demand affects the oil industry.Gasoline, gas or petrol is clear petroleum- derived in the liquid form for combustion engines.
Input prices in economics:- Input prices are all the costs that use for producing a good or service.Input prices can include land or the cost of renting.
Equilibrium of price and quantity of gasoline:-
Diagram 1
When the input prices fall, supply of gasoline increase and when the consumer incomes increase demand for gasoline increases and the equilibrium happens at the new point 'E1' at lower price and increase in quantity.