Question

Let D0 and S0 be the initial demand and supply curves for gasoline. Let P* and Q* be the initial equilibrium in this market. There is an increase in incomes due to a technology boom. Which ONE of the following correctly captures the effect of this change on the market for gasoline? Question 3 options: Both equilibrium quantity and price will increase Both equilibrium quantity and price will decrease Equilibrium quantity will increase, but equilibrium price will decrease Equilibrium quantity will decrease, but equilibrium price will increase

Answer 1

Answer: Both equilibrium quantity and price will increase

Step-by-step explanation:

If there is an increase in income, it means that people can afford to buy more gasoline or rather will buy more things that need gasoline such as cars.

The demand for gasoline will therefore go up and shift the demand curve to the right. The demand curve will then intersect with the supply curve at a higher equilibrium price and quantity.