Question
Assume the U.S. economy is booming, incomes (profit, wage, rent, and interest) are rising, and current consumer confidence is strong. At the same time suppose
Assume the U.S. economy is booming, incomes (profit, wage, rent, and interest) are rising, and current consumer confidence is strong. At the same time suppose war with Iran seems more likely than not. Which of the following would a reasonable outcome and interpretation of the application of the supply and demand model to the gasoline market, other things being equal?
A booming economy, high incomes, and high confidence will tend to increase demand for gasoline, while expectations for a war will tend to reduce supply. equilibrium gasoline price will rise, and changes to equilibrium quantity are unknown.
A booming economy, high incomes, and high confidence will tend to increase demand for gasoline, and expectations for a war will have no effect the supply and equilibrium gasoline price and quantity demanded will be unchanged.
A booming economy, high incomes, and high confidence will tend to increase quantity demanded of gasoline, while expectations for a war increase quantity supplied and equilibrium gasoline price and quantity will rise.
A booming economy, high incomes, and high confidence will tend to reduce demand for gasoline as consumers buy electric cars right away and expectations for a war will reduce supply and equilibrium gasoline price and quantity will fall.
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