Question

1, Graph the demand and supply curves and show the equilibrium price and quality.

2, At a price of $3 per gallon, would there be a surplus or shortage of gasoline? How much would the surplus or shortage be? Indicate the surplus or shortage on the graph.

3, At a price of $6 per gallon, would there be a surplus or shortage of gasoline? How much would the surplus or shortage be? Show the surplus or shortage on the graph.

Answer 1

1.

Demand curve is negatively sloped because of inverse relationship between price and quantity demanded.

Supply curve is positively sloped because of positive relationship between price and quantity supplied.

Intersection of demand and supply curve is the equilibrium point.

2. Let equilibrium price is $ 5. When price is less than equilibrium price then there is shortage of gasoline in the market because quantity demanded is greater than quantity supplied.

3. Let equilibrium price is $ 5. When price is greater than equilibrium price then there is surplus of gasoline in the market because quantity supplied is greater than quantity demanded.