Question

What effect should each of the following have on the demand for gasoline in a competitive market? Indicate what happens to demand using an I= increase, D= decrease, and NC=no change. (a)_______an increase in the number of cars (b) _______the economy moves into a recovery (c)_________an increase in the price of car insurance, taxes, maintenance (d) _________more gas stations are built

Answer 1

a) Increase.

There will be an increase in the demand for gasoline, because of an increase in the number of cars, it will need more gas, hence demand would increase.

b) Increase

Because of recovery in the economy, demand for gasoline would rise. People would increase demand in all areas.

c) Decrease

Due to rise in these costs, and complementarity of goods , demand for gasoline would decrease.

d) No change.

Since it is the supply side change, supply will increase. No change in demand for gasoline.