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. LO6

a. Use the following facts to fill in the missing data in the table. If demand is D 1 and supply is S 1 , the equilibrium quantity is 7000 gallons per month. When demand is D 2 and supply is S 1 , the equilibrium price is $3.00 per gallon.
When demand is D 2 and supply is S 1 , there is an excess demand of 4000 gallons per month at a price of $1.00 per gallon. If demand is D 1 and supply is S 2 , the equilibrium quantity is 8000 gallons per month.

b. Compare two equilibriums. In the first, demand is D 1 and supply is S 1 . In the second, demand is D 1 and supply is S 2 . By how much does the equilibrium quantity change? By how much does the equilibrium price change?

c. If supply falls from S 2 to S 1 while demand declines from D 2 to D 1 , 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 S 1 and that demand starts at D 1 . 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?

Transcribed Image Text:

Quantities Demanded Quantities Supplied Price D D S S $4.00 5000 7500 9000 9500 6000 8000 8000 9000 2.00 8500 8500 9000 5000