Question

An article in the Wall Street Journal recently discussed the market for gasoline in the United States during the summer of 2013. Compared with the previous summer (2012), the article stated that there will be "lower demand, as cars become more efficient." The demand and supply graph below shows the market for gasoline in summer 2012. Use this graph to analyze the situation described in this article for the summer of 2013. How will this affect the graph? 2012 p.S per Gallon P2012 D2012 Qro12 Q Quantity of Gasoline The equilibrium price will decrease and the equilibrium quantity will decrease. The equilibrium price will decrease and the equilibrium quantity will increase. The equilibrium price will increase and the equilibrium quantity will increase 6

Answer 1

Question 18

It has been stated that due to increase in efficiency of cars, the demand for cars will be reduced.

Highly efficient cars coupled with decreased demand for cars will translate into lower demand for gasoline.

So,

There will be decrease in demand for gasoline. The demand curve for gasoline will shift leftwards.

Following is the graph -

It can be seen that leftward shift of demand curve has resulted in a decrease in both equilibrium price and equilibrium quantity.

So,

The equilibrium price will decrease and the equilibrium quantity will decrease.

Hence, the correct answer is the option (1).