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Explain what would happen to either the supply curve, the demand curve, the price of gasoline...

Explain what would happen to either the supply curve, the demand curve, the price of gasoline and the quantity of gasoline traded at equilibrium if the following scenarios occurred. Provide a simple sketch of the appropriate shift in the appropriate curve.

  1. If President Trump’s reduction in taxes (passed in December 2017), caused disposable income to rise, what would happen in the market for gasoline?
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Answer #1

If reduction in taxes increases disposable income, then people will increase their demand for gasoline because now they have more money to purchase gasoline. This increase in demand will shift the demand curve rightward in the gasoline market, while supply remains unchanged.

As a result of the shift, equilibrium price of gasoline increases from p1 to p2 and equilibrium quantity (quantity of gasoline traded) also increases to Q2 from initial quantity Q1.

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