Given the following information about the market for gasoline (quantities in millions):
|
Price per gallon
|
Quantity Demanded
|
Quantity Supplied
|
|
$9
|
50
|
200
|
|
$8
|
75
|
175
|
|
$7
|
100
|
150
|
|
$6
|
125
|
125
|
|
$5
|
150
|
100
|
|
$4
|
175
|
75
|
|
$3
|
200
|
50
|
|
$2
|
225
|
25
|
Graph the demand and supply curves for gasoline (You do NOT submit the graph for grading) and answer the following. You must include a brief explanation of approximately 50 words for each answer to receive full credit:
- What is the equilibrium price (P*) of gasoline and what is the equilibrium quantity (Q*) of gasoline?
- If the price of gasoline were $8 per gallon, using the table above, determine whether a surplus or a shortage would exist, and determine the amount (# of gallons) of this shortage or surplus.
- Now, suppose the federal government imposes a price ceiling of $4 per gallon. What is the effect of this action on this market for gasoline?
- Suppose that the supply of gasoline suddenly increases, while the demand for gasoline is held constant. How would this affect the equilibrium price and equilibrium quantity in the market? In other words, answer whether equilibrium price (P*) and equilibrium quantity (Q*) would rise, fall, or remain unchanged.