Review Figure 3.4. Suppose the
Figure 3.4
If the price of gasoline is $1.60 per gallon and the equilibrium price is $1.40 per gallon. Comment whether the quantity demanded and supplied is higher or lower at $1.60 per gallon. Is there a shortage or surplus?
Explanation of Solution
As per the diagram, the equilibrium price is $1.40 per gallon in the market. Any price above the equilibrium price level in the market creates surplus of the product in the market and any price below the equilibrium price creates a shortage of the product in the market.
In the above figure, at price level $1.60 per gallon, the quantity demand is 550 millions of gallons and quantity supply is 680 million gallons, represented by point A and B in the diagram. Clearly, we can see that quantity supply is more than quantity demand and there is a surplus of the product.
If the price is below the equilibrium price, then there will be shortage of the product.
Equilibrium Price: It is that level of price where demand of a product is equal to the supply of a product.
Want to see more full solutions like this?
Chapter 3 Solutions
Principles of Economics 2e
Additional Business Textbook Solutions
Principles of Accounting Volume 2
Cost Accounting (15th Edition)
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Managerial Accounting (5th Edition)
Financial Accounting (12th Edition) (What's New in Accounting)
Construction Accounting And Financial Management (4th Edition)
- Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStaxEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning