Question

In January 2010, the price of gasoline was $2.70 a gallon. By spring 2010, the price had increased to $3.00 a gallon. Assume that there were no changes in average income, population, or any other influence on buying plans. Explain how the rise in the price of gasoline would affect the demand for gasoline.

Answer 1

The rise in gasoline prices would lead to a decrease in demand and an increase in supply of gasoline.

Step-by-step explanation:

The rise in the price of gasoline would affect the demand for gasoline in a couple of ways:

1. Higher prices would lead to a decrease in demand for gasoline. As the price of gasoline increases, consumers may choose to use alternative modes of transportation, such as public transportation or carpooling, to save money. This decrease in demand would result in a decrease in the quantity of gasoline demanded.
2. Higher prices could also lead to an increase in supply of gasoline. If the price of gasoline rises, it becomes more profitable for gasoline producers to supply more gasoline to the market. This increased supply would result in a higher quantity of gasoline available for consumers.
3. Overall, the increase in gasoline prices would likely lead to a decrease in the quantity of gasoline demanded and an increase in the quantity of gasoline supplied.