Author Question: If the price of crude oil falls, the demand for gasoline will increase, so people will by more gas ... (Read 62 times)

nelaaney · **on:** Jun 29, 2018

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?

Question 2

In a budget line/indifference curve diagram, at the consumer equilibrium

A) any movement upward or downward on the budget line will move the consumer to a less preferred point.
B) any movement to the northeast to higher indifference curves moves the consumer to a less preferred point.
C) the slope of the budget line is as much larger as possible than the marginal rate of substitution.
D) All of the above statements are correct.

jjorrostieta · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

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.

Answer to Question 2

A