Suppose the market for gasoline is in equilibrium. You have heard that the price of crude oil is rising because of Organization of Petroleum Exporting Countries (OPEC) restrictions. You are also aware that the number of drivers is rising. Knowing this, you predict that the price of gasoline will _____ and the quantity of gasoline bought and sold will _____.

Question

Quizplus · Accepted Answer

The rising price of crude oil will lead to a higher cost of producing gasoline, which will result in a higher equilibrium price for gasoline. However, the increasing number of drivers will also contribute to a higher demand for gasoline and potentially a higher equilibrium quantity. Therefore, the price of gasoline will rise, but the change in quantity bought and sold could go either way, depending on the relative magnitude of the shifts in supply and demand.

Suppose the Market for Gasoline Is in Equilibrium