Question

Suppose consumer income in the United States increases, and at the same time, the price of crude oil rises.

In the scenario above, the equilibrium price of gasoline:

	Will rise
	Will not change
	May rise, fall, or remain unchanged
	Will fall

Question 35 (1 point)

In the scenario above, the equilibrium quantity of gasoline:

	Will increase
	May increase, decrease, or remain unchanged
	Will not change
	Will decrease

Answer 1

Question 34

Increase in income will lead to the increase in demand of gasoline.

The rise in the price of crude will increase the cost of producing gasoline. This will reduce the profit of gasoline producers and will compel them to reduce the production and thereby supply.

So, supply of gasoline will decrease.

When the demand for a good increases and the supply of the good decreases in simultaneous manner then in such case price of good increases.

So,

In the given scenario, the equilibrium price of gasoline will rise.

Hence, the correct answer is the option (1).

Question 35

Increase in income will lead to the increase in demand of gasoline.

The rise in the price of crude will increase the cost of producing gasoline. This will reduce the profit of gasoline producers and will compel them to reduce the production and thereby supply.

So, supply of gasoline will decrease.

When the demand for a good increases and the supply of the good decreases in simultaneous manner then in such case price of good increases. However, impact on equilibrium quantity depends on the magnitude of change in the demand and supply.

In given case, there is no information regarding the magnitude of change in demand and supply.

So,

In the given scenario, the equilibrium quantity if gasoline may increase, decrease, or remain unchanged.

Hence, the correct answer is the option (2).