Final answer:
The question explores the demand and supply for gasoline at a specific location versus a broader area, emphasizing the equilibrium point and the effects of price changes on quantity supplied and demanded.
Step-by-step explanation:
The student is asking about the concept of demand and supply, particularly as it pertains to the market for gasoline in a specific location versus the entire city. The equilibrium price and quantity are achieved when the demand curve (D) and the supply curve (S) intersect, which in this case is at a price of $1.40 per gallon and a quantity of 600 million gallons. At a higher price, such as $1.60 per gallon, the laws of demand and supply indicate that the quantity demanded decreases to 550 million gallons and the quantity supplied increases to 640 million gallons, resulting in a surplus of 90 million gallons. This demonstrates how prices above or below the equilibrium price lead to either excess supply or excess demand, respectively.