CHANGES IN THE DEMAND AND SUPPLY OF GASOLINE Name Class 1 A group of economists studied the gasoline mar- 3 According to the graph, the market-clearing (or ket. They wanted to find out how many gallons con- equilibrium) price for gasoline is and the num- sumers would buy each day at various prices. Let us ber of gallons of gasoline bought and sold is suppose that through market research, they found that Label this equilibrium point E,. If the price of a gallon People would Why is this the market clearing price? of gasoline was buy $0.40 55 million gallons 0.80 40 million gallons 5 Assume that big gas-guzzling cars are the latest 1.20 25 million gallons fad. Because consumers buy so many gas guzzlers, 1.60 10 million gallons they want to buy 30 million more gallons of gasoline 2.00 5 million gallons per day at every price. For example, at $0.40 per gallon 2.40 1 million gallons people now want to buy 85 million gallons rather than 55 million gallons. Plot the new demand schedule and This information is called a demand schedule. Plot draw the new demand curve on your graph, using this the data on the blank graph (Handout 7-2) and connect new information. Label the new curve D2. What is the the dots with a line. This line is called a demand curve. market-clearing price? - How many gallons will Label it D,. What is the relationship between price and be bought and sold? - Label this new equilibrium the quantity of gasoline demanded? point E2- 6 Now assume that two oil-producing countries get into a war and destroy each other's oil wells. Be- 2 The economists also surveyed sellers to deter- cause of this, sellers are willing to sell 20 million fewer mine how many gallons of gasoline they would be willing gallons of gasoline per day at every price. For example, to sell each day at various prices. They found that at $0.40 per gallon sellers are willing to sell only 5 million gallons rather than 25 million gallons. Plot the new If the price of a gallon Sellers would sell supply schedule and draw the new supply curve on of gasoline was your graph. Label the new curve S2. According to de- $0.40 25 million gallons mand curve D2 and supply curve S2, what is the new 0.80 40 million gallons market-clearing (or equilibrium) price?. 1.20 55 million gallons How many gallons will be bought and sold? 1.60 70 million gallons Label this new equilibrium point Es. 2.00 85 million gallons 7 Indicate how the newspaper headlines below 2.40 90 million gallons affect supply and demand and equilibrium price and This information is called a supply schedule. Plot the quantity. Each headline describes a condition that af- data on the graph (Handout 7-2) and connect the dots fects either supply or demand, but not both. The first with a line. This line is called a supply curve. Label it headline is completed for you. (Note that if the condition S,. What is the relationship between price and the quan- does not affect an alternative in a column-in the ex- tity of gasoline supplied?_ ample, the condition described in the headline leaves demand unchanged- do not circle either arrow.) Equilibrium Equilibrium Demand Supply Price Quantity OPEC NATIONS AGREE ON QUOTAS-CUT PRO- DUCTION NORTH SEA OIL BEGINS TO FLOW ECONOMIC RECOVERY SPREADS WORLDWIDE NEW GAS-SAVING ENGINE ANNOUNCED NATIONAL STRIKE: MASS TRANSIT SHUTDOWN