Homework Answers
a) In the market for gasoline, the demand curve shifts to the left ( consumer income decreases) and the supply curve shifts to the right ( as supply increases due to fall in the price of input).
Consumer income is determinant of demand. Since gasoline is a normal good, when income decreases, the demand for gasoline falls. The demand curve shifts to the left (decreases).
The supply curve also shifts to the right as cost of production of gasoline decreases.
b) Demand curve shifts to the left (decreases) and supply curve shifts to the right (increases).
c) The equilibrium price will fall as the supply increases and demand decreases.
d) The effect on the equilibrium quantity cannot be determined.
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