"If the price of crude oil falls, the demand for gasoline will increase, so people will by more gas and the price of gas will go up." Is this statement true or false? Explain
What will be an ideal response?
The analysis is false. If the price of crude oil falls, the supply of gasoline increases, because crude oil is a resource used to produce gasoline. The prices of resources used to produce the good influence its supply, not demand. So, if the price of oil falls, the supply of gasoline increases and the supply curve shifts rightward. The equilibrium price of gasoline falls. It is true that people will buy more gasoline, but this happens not because the demand increases, but because a lower price results in a movement down the demand curve so that the quantity demanded increases.
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Use the following graph, where Sd and Dd are the domestic supply and demand curves for a product, to answer the next question.
The world price of the product is $6. If an import quota of 40 units is imposed on the product, then the equilibrium price would be_____ and the quantity consumed would be ________ units.
A. $6; 80 B. $12; 50 C. $10; 60 D. $8; 70
Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause a(n):
A. upward movement along the demand curve for bus travel. B. downward movement along the demand curve for bus travel. C. rightward shift in the demand curve for bus travel. D. leftward shift in the demand curve for bus travel.
Which of the following statements is true?
A. Economic models are sometimes good for explaining one set of events and poor for explaining other sets of events. B. A model that has correctly predicted events for the past several years will not be wrong in the future. C. Economic models are either right or they are wrong. D. An economic model that is not always true is not useful and should not be used.
Assume there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. Which of the following would not be expected to happen?
A) Oil companies would "ration" their supplies of gasoline by raising price. B) There would be a shortage of the original equilibrium price. C) Quantity demanded would decrease. D) The demand curve would shift to the left.