Price of Gasoline (per gallon) <?xml:namespace prefix = o ns = \"urn:schemas-mic
ID: 1237085 • Letter: P
Question
Price of Gasoline (per gallon) <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>
Quantity Demanded (millions of gallons per week)
Quantity Supplied (millions of gallons per week)
$0.50
85
0
$1.00
75
15
$1.50
65
20
$2.00
55
25
$2.50
45
30
$3.00
35
35
$3.50
25
45
$4.00
15
55
A. Graph the demand and supply for gasoline.
Please start your graph at the origin and label each axis and each curve.
B. The equilibrium price of gasoline is _____ and the equilibrium quantity is ___.
C. The government imposes a price ceiling of $2.50 in this market. The prevailing price in this market is now _______. The quantity demanded is now _________ and the quantity supplied is __________.
D. The price ceiling results in a (SURPLUS OR SHORTAGE) _______________ in the amount of _______.
Price of Gasoline (per gallon) <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>
Quantity Demanded (millions of gallons per week)
Quantity Supplied (millions of gallons per week)
$0.50
85
0
$1.00
75
15
$1.50
65
20
$2.00
55
25
$2.50
45
30
$3.00
35
35
$3.50
25
45
$4.00
15
55
Explanation / Answer
B. The equilibrium price of gasoline is $3.00 because this is where quantity demanded = quantity supplied and the equilibrium quantity is 35.
C. The government imposes a price ceiling of $2.50 in this market. The prevailing price in this market is now $2.50 because that's as close to the ACTUAL equilibrium price as we can get (a "price ceiling" is like a maximum price) The quantity demanded is now 45 and the quantity supplied is 30.
D. The price ceiling results in a (SURPLUS OR SHORTAGE) SHORTAGE (because more people are demanding than are supplying -- there's not enough to go around!) in the amount of 45 - 30 = 15.
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