Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005.As a result of this,many gasoline distributors were not able to maintain normal deliveries.At the pre-hurricane equilibrium price (i.e.,at the initial equilibrium price),we would expect to see
A)a surplus of gasoline.
B)the quantity demanded equal to the quantity supplied.
C)a shortage of gasoline.
D)an increase in the demand for gasoline.

Question

Quizplus · Accepted Answer

The damage to refining and pipeline capacity resulted in a decrease in the quantity supplied of gasoline. At the pre-hurricane equilibrium price, the quantity demanded of gasoline would be greater than the quantity supplied, creating a shortage of gasoline. This would likely lead to an increase in the price of gasoline as distributors competed for limited supplies. Option A is incorrect because there would not be a surplus of gasoline given the decrease in refining and pipeline capacity. Option B is incorrect because there would be a shortage of gasoline, not an equal quantity demanded and supplied. Option D is incorrect because there is no indication that the hurricane led to an increase in demand for gasoline.

Hurricane Katrina Damaged a Large Portion of Refining and Pipeline