Question

using supply and demand diagrams show the effect of the following events on the market equilibrium for gasoline. Expectations of a war in the middle east that will involve the oil producing countries.

Answer 1

There are expectations of war in the middle East that will involve the oil producing countries. This will lead people to thik that there would be a Decrease in the supply because when the middle East countries that produce oil go to war, the supply of oil would disrupt which would lead to an increase in the supply of price in the future. So, people would expect that the price of gasoline would Increase in the future. When that happens, people would tend to buy more gasoline today to keep stocks. So, there would be an increase in the demand for gasoline. This would lead to a rightward Shift in the demand curve for gasoline which in turn would lead to an increase in equilibrium price of gasoline and an increase in Equilibrium Quantity of Gasoline. This is shown in the Diagram below.