Question

In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was $3.68—a 22-cent increase from the year before. Many consumers were upset by the increase. One was quoted in a local newspaper as saying, "It's crazy. The government should step in." Market for Gasoline $3.90 $3.82 Source: Sam Kennedy, "Valley Feeling Pain at the Pump," (Allentown, PA) Morning Call, June 21, 2014. a-l. Before the price ceiling is imposed, the equilbrium price is $ and the equilbrium quantity is thousand gallons. (Enter your responses for price to two decimal places and for quantity as a whole number.) Price ($) $3.46 $3.324 Quantity (thousand gallons)

Answer 1

Economists aim to understand the factors that determine gasoline prices, which are influenced by cost aspects like crude oil and taxes, and market dynamics of supply and demand. Price fluctuations over the years demonstrate how the market adjusts to changes in these underlying determinants, affecting both consumer behavior and pricing.

Step-by-step explanation:

When economists discuss the dynamics of the market for gasoline, their primary focus is to understand the underlying factors influencing price fluctuations rather than passing judgment on the changes. The average price of gasoline fluctuated significantly between June 2014 and January 2016, and again in 2020-2021, due to various determinants impacting both supply and demand.

The determinants of gasoline prices involve the cost of crude oil, refining costs, distribution and marketing expenses, and taxes, all of which play a role in shaping the final price consumers pay at the pump. Changes in any of these factors, such as a shift in global oil supply due to geopolitical issues or variances in refining capacity due to seasonal or technical reasons, can lead to price adjustments.

Moreover, consumer behavior in response to price changes is also critical. For instance, if the price is above the equilibrium, where supply equals demand, the quantity demanded typically decreases, as buyers seek ways to reduce their gasoline consumption due to higher costs. Conversely, when prices fall below equilibrium, the quantity demanded will increase, prompting additional consumption.