Question

January 2007, the price of gasoline was $2.38 a gallon. By May 2008, the price of gasoline increased to $3.84 a gallon. Assume that there were no changes in average income, population, or any other influence on buying plans. How would you expect the rise in the price of gasoline to affect

a. The demand for gasoline? Explain your answer.

b. The quantity demanded for gasoline? Explain your answer.

Answer 1

(a)

Price of gasoline will not cause a change in its demand, since the non-price determinants of demand are unchanged. The demand curve will not shift.

(b)

As per law of demand, higher price of gasoline will decrease its quantity demanded, causing an upward movement along the demand curve.