Question

Gasoline stations very near a professional stadium park car on their lots to make money on game days. How will the supply of parking spaces be affected in each of the following cases, assuming that the market is competitive? State what happens to supply. Explain your reasoning in each case and relate it to a supply determinate. In addition, explain the change that takes place in equilibrium price and quantity. Include a graph for each answer. (25 points) a. An increase in the number of gas stations around the stadium. b. A decrease in wages of parking attendants at the gas stations.

Answer 1

In both graphs, D0 and S0 are initial demand and supply curves of parking lot, intersecting at point A with equilibrium price P0 and quantity Q0.

(a)

Increase in number of gas stations is an increase in number of sellers. This will increase supply, shifting supply curve rightward, decreasing price and increasing quantity.

In following graph, S0 shifts right to S1, intersecting S0 at point B with lower price P1 and higher quantity Q1.

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(b)

Decrease in wage will decrease the cost of production. This will increase supply, shifting supply curve rightward, decreasing price and increasing quantity.

In following graph, S0 shifts right to S1, intersecting S0 at point B with lower price P1 and higher quantity Q1.

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