Question
Assume there are two goods in an economy, gasoline and petrodiesel that are substitutes in consumption but complements in production. Gasoline demand and supply are:
Assume there are two goods in an economy, gasoline and petrodiesel that are substitutes in consumption but complements in production.
Gasoline demand and supply are: Qd g = 750 ‒ 45Pg + 30Pp and Qs g = 30Pg + 15Pp where Pg is price of gasoline and Pp price of petrodiesel.
Petrodiesel demand and supply are: Qd p = 1,495 ‒ 40Pp + 23Pg and Qsp = 25Pp + 10Pg
a. What are the equilibrium prices and quantities of gasoline and petrodiesel?
b. If the demand for gasoline decreases by 300 at every price, what would the equilibrium prices and quantities of gasoline and petrodiesel be?
c. Explain, in no more than 5 to 7 sentences, how the inward shift in demand for gasoline affects the market for petrodiesel through the demand-side link.
d. Explain, in no more than 5 to 7 sentences, how the inward shift in demand for gasoline affects the market for petrodiesel through the supply-side link.
e. According to your results from parts a and b, which one is dominant? Demand-side link or supply-side link? Explain your response in a maximum of 3 sentences.
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