The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.

Question

BlackTom AI · Accepted Answer

The question asks about how a large new reserve of crude oil would affect the gasoline market.
Option 1: 'supply, higher' would imply that the supply curve shifts to the left or that equilibrium price rises; both are inconsistent with a large increase in crude oil reserves, which typically makes production cheaper and more abundant, reducing price.
Option 2: 'supply, lower' correctly describes the effect: an increase in crude oil reserves shifts the supply curve to the right (more supply at every price), leading to a lower equilibrium price for gasoline as the market clears at a new, cheaper price level.
Option 3: 'demand, higher' would mean the demand curve shifts to the right, raising price, which does not align with a sudden abundance of crude oil reducing production costs and not directly increasing consumers’ desire for gasoline; demand shifts are driven by factors like income or preferences, not by the oil reserve increase alone.
Option 4: 'demand, lower' would imply the demand curve shifts to the left, lowering price; while price could fall due to cheaper input costs, the direct effect of more crude oil on the market is a shift in supply, not demand, making this choice the incorrect cause-and-effect.
In summary, the key mechanism is that a larger crude oil reserve increases supply, moving the supply curve to the right and lowering the equilibrium price; the other options misidentify the direction of the shift or misattribute the cause to demand changes.

ECON 100 001/002/003/004 Markets

The discovery of a large new reserve of crude oil will shift the curve for gasoline, leading to a equilibrium price.

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ECON 100 001/002/003/004 Markets

The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price.

View Explanation

Log in for full answers

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Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

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