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Chapter 3: Q. 52 (page 80)

Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?

Short Answer

Expert verified

The quantity demanded will be higher than at the equilibrium price.

Step by step solution

01

Step 1. Given information

Equilbrium price of gasoline is $1.40.

The current price in the market is $1.

02

Step 2. Explanation

The price and quantity demanded have a negative relationship, meaning at a lower price, the quantity demanded would be higher. So, at a price of $1 per gallon, the quantity demanded would be higher than the at $1.40.

Though the quantity supplied would be lower because of the positive relationship between price and quantity supplied. This would create a shortage in the market. The quantity demanded is 800 gallons but the quantity supplied is only 500 gallons. So there would be shortage of 300 gallons.

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