Assume the following data describe the gasoline market:
|
Price per gallon
|
$1.00
|
1.25
|
1.50
|
1.75
|
2.00
|
2.25
|
2.50
|
|
Quantity Demanded
|
26
|
25
|
24
|
23
|
22
|
21
|
20
|
|
Quantity Supplied
|
16
|
20
|
24
|
28
|
32
|
36
|
40
|
a. What is the equilibrium price?
b. If the quantity supplied at every price is reduced by 5 gallons, what will the new equilibrium price be?
c. If the government freezes the price of gasoline at its initial price, how much of a surplus or shortage will exist when supply is reduced as described above?
d. Illustrate your answers on a graph.