ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Suppose that initially, the gasoline market is in equilibrium. War in the Middle East disrupts imports of oil into the United States shifting the supply curve to S2. The
price of gasoline begins to rise, and consumers protest. The government intervenes and sets aprice ceiling of $3 per gallon. Use the graph below to answer questions
What are the original
What is the equilibrium price and quantity after the Middle East war begins (S2)?
If the price ceiling is imposed, what will occur? A surplus or shortage?
Suppose that initially, the gasoline market is in equilibrium. War in the Middle East disrupts imports of oil into the United States shifting the supply curve to S2. The price of gasoline begins to rise, and consumers protest. The government intervenes and sets a price ceiling of $3 per gallon. Use the graph below to answer questions 2a – 2d.
How are suppliers affected?
Transcribed Image Text:Price
$10
8
28 30
34
Demand
Supply
Quantity (millions of
crates per year)
Expert Solution
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Step 1
Price ceiling: A price cap is a price control or restriction imposed by a government or group on the amount billed for a product, goods, or service. The government has reportedly set price caps to protect consumers from situations where goods could become prohibitively expensive. A price cap is the legal maximum price you can pay for goods or services. Governments set price caps to keep the prices of essential goods and services affordable.
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- In the table below, fill in the missing blanks to complete the summary of the effects of changes in demand and supply on equilibrium price and quantity. Supply Curve Unchanged Supply Curve Shifts to the Supply Curve Shifts to the Right Left Q unchanged Punchanged Demand Curve Q Q decreases Unchanged P decreases P increases Q increases Q increases Pindeterminant Demand Curve Shifts to Q indeterminant the Right P increases Q decreases P decreases Demand Curve Shifts to the Left P decreases P indeterminantarrow_forwardShow the change graphically for a simultaneous decrease in demand and a increase in supply. For each scenario, state how equilibrium price and quantity changes. What is the conclusion of these changes (can you say for certainty what direction to equilibrium quantity and price changes)? Recall you have three sets of graphs here. Demand changes by a larger magnitude than Supply Demand changes by a smaller magnitude than Supply Demand and Supply changes by the same magnitude.arrow_forwardFor each of the following changes in the demand or supply curves in the automobile market below, draw a graph showing the old demand and supply curves as well as the new demand or supply curve (whichever shifts). Also, show how the equilibrium price and equilibrium quantity change. Show work on 3 different graphs. The income of consumers rises and automobiles are considered a normal good. Over time, and due to new resource discoveries, gasoline prices fall. The availability and price of public transportation falls.arrow_forward
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