Macroeconomics 19th Edition by Campbell McConnell , Stanley Brue,Sean Flynn

Exercise 1

Demand and supply often shift in the retail market for gasoline. Here are two demand curves and two supply curves for gallons of gasoline in the month of May in a small town in Maine. Some of the data is missing.
a. Use the following facts to fill in the missing data in the table. If demand is D 1 and Supply is S₁, the equilibrium quantity is 7000 gallons per month. When demand is D 2 and supply is S₁, the equilibrium price is $3.00 per gallon. When demand is D 2 and supply is S₁, there is an excess demand of 4000 gallons per month at a price of $1.00 per gallon. If demand is D 1 and supply is S₂, the equilibrium quantity is 8000 gallons per month.
b. Compare two equilibriums. In the first, demand is D 1 and supply is S₁. In the second, demand is D 1 and supply is S₂. By how much does the equilibrium quantity change? By how much does the equilibrium price change?
c. If supply falls from S₂ to S₁ while demand declines from D 2 to D 1, does the equilibrium price rise or fall or stay the same? What if only supply falls? What if only demand falls?
d. Suppose that supply is fixed at S₁ and that demand starts at D 1. By how many gallons per month would demand have to increase at each price level such that the equilibrium price per gallon would be $3.00? $4.00?