Question

Gasoline consumption in automobiles is a major source of carbon emissions in the United States. Beginning in 2008, a major recession in the U.S. economy reduced the incomes of millions of gasoline consumers. Use a supply-and-demand diagram to show what likely happened to price and quantity in the market for gasoline.

Answer 1

Ans. When million kf people have had reduced incomes, so, they will decrease the demand for gasoline. This will shift the demand curve for gasoline to the left from D to D'. This will lead to surplus of gasoline in the market which will lead to fall in demand to Q'' from Q. This decrease in demand puts a downward pressure on price, so, when price starts decreasing the quantity demanded starts increasing moving the equilibrium to the equilibrium price of P' and equilibrium quantity of Q' both which are less than the initial price, P and initial quantity, Q respectively.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.