Question

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 200th gallon of gasoline entails the following: . a private cost of $3.03; • a social cost of $3.23; • a value to consumers of $3.39. Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 220 gallons; that is, Q MARKET = 220. Then the equilibrium price of a gallon could be a. $3.08. b.$2.77. C. $2.45. d. $3.69.

Answer 1

At 200th gallon of gasoline .

Private cost = $3.03

Social cost = $3.23

This means Social cost lies above the private cost.

Value to consumers = $3.39 (this is represented by the demand curve)

So, the graph for this would be like this as shown below :

Price Soual Cost 3.39 3.23 Privatessual 3.03 0 200 220. Auantity

The equilibrium quantity is 220 gallons.

The market equilibrium occurs where private value equals private cost.

From the given graph , we can see that the equilibrium price lies between $3.03 and $3.23.

And from the given options $3.08 lies between the above prices. Therefore, the equilibrium price of a gallon would be $3.08.

Hence, option(A) is correct.