Economics 19th Edition by Stanley Brue, Cambell McConnell, Campbell McConnell, Sean Masaki Flynn, Sean Flynn

Exercise 1

Demand and supply often shift in the retail market for gasoline. Here are two demand curves and two supply curves for gallons of gasoline in the month of May in a small town in Maine. Some of the data are missing.

a. Use the following facts to fill in the missing data in the table. If demand is D¹ and supply is S¹ , the equilibrium quantity is 7000 gallons per month. When demand is D² and supply is S¹ , the equilibrium price is $3.00 per gallon. When demand is D² and supply is S¹ , there is an excess demand of 4000 gallons per month at a price of $1.00 per gallon. If demand is D¹ and supply is S² , the equilibrium quantity is 8000 gallons per month.
b. Compare two equilibriums. In the first, demand is D¹ and supply is S¹. In the second, demand is D¹ and supply is S². By how much does the equilibrium quantity change By how much does the equilibrium price change
c. If supply falls from S² to S¹ while demand declines from D² to D¹ , does the equilibrium price rise, fall, or stay the same What if only supply falls What if only demand falls
d. Suppose that supply is fixed at S¹ and that demand starts at D¹. By how many gallons per month would demand have to increase at each price level such that the equilibrium price per gallon would be $3.00 $4.00