uppose that in September 2020 the monthly demand and supply for gasoline in the U.S. were given by: =13.2 and =5 where Q and P measure, respectively, the quantity of gasoline (in billions of gallons) and the price (in dollars per gallon). a. Do the equations above indicate that the market of gasoline is affected only by the price of gasoline (so that other variables don't matter)? Explain. b. Assuming that the market for gasoline is perfectly competitive, find the equilibrium price and quantity. Illustrate the demand and supply represented by the equations above and the equilibrium on one graph with Q on the horizontal axis and P on the vertical axis. In September 2022 the price of gasoline in the U.S. is $3.7 per gallon. Suppose that the increase in the equilibrium price of gasoline is the result of a contraction in the supply of gasoline due to an increase in the price of oil (an input in the production of gasoline). It has been estimated that, holding the price of gasoline constant, the increase in the price of oil has caused the monthly supply of gasoline to drop by 6 billion gallons relative to last year.

3 c. Assuming that the demand for gasoline is not affected by any exogenous shock, why would the equilibrium quantity of gasoline fall by less than 6 billion gallons of gasoline per month? Explain your answer without using any equations or graph. Suppose that the greater availability of electric cars increases the price elasticity of demand of gasoline (at the equilibrium of part b) relative to what we have assumed so far. d. How does the greater elasticity of the demand for gasoline affect the change in equilibrium price and quantity (due to the contraction in supply) relative to what was discussed above? Clearly explain the intuition of your answer.