1. Surveys show that a small increase in the price of one brand of gasoline (e.g
ID: 1124213 • Letter: 1
Question
1. Surveys show that a small increase in the price of one brand of gasoline (e.g. Shell or Irving) will cause most people to switch to other brands. This finding suggests that the demand curve for an individual brand of gasoline is:
a) relatively inelastic
b) upward sloping
c) relatively elastic
d) vertical
2. Suppose there are 5 gas stations in Durham. All of them sell, among other things, 87 octane regular unleaded gas. Which of the following best describes the market for 87 octane gas in Durham?
a) monopoly
b) undifferentiated oligopoly
c) perfect competition
d) monopolistic competition
3. Recently an energy supplier stated in a press release: "We will be cutting 6% of heating oil production in response to low heating oil prices." This describes:
a) a shift in of the supply curve
b) a movement down along the supply curve
c) a movement up along the supply curve
d) a shift out of the supply curve
Explanation / Answer
1) Option c is correct
the demand curve for an individual brand of gasoline is relatively elastic (high substitutability)
2) Option b is correct
The market is an undifferentiated oligopoly (few firms selling similar product)
3) Option a is correct
A shift of the supply curve (to the left) would restore equilibrium at a higher price.
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