Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market

Question

BlackTom AI · Accepted Answer

The prompt asks us to assess how consumer surplus in the gasoline market would respond when the price of motor oil rises, given that motor oil and gasoline are complements.

First, note an important missing piece: the list of answer options is not provided in the data you shared. Without the explicit choices, we cannot identify which option corresponds to the correct letter or phrase. We can still discuss the underlying intuition and typical results.

General reasoning about complements:
- If two goods are true complements for many consumers (you need both to use your car effectively), a rise in the price of one good (motor oil) tends to reduce the quantity demanded of both goods in joint use scenarios. This is because higher motor oil prices make owning and operating a vehicle more expensive, which reduces overall driving or vehicle usage.
- A reduction in overall driving and vehicle use lowers the quantity of gasoline purchased, which tends to reduce the consumer surplus in the gasoline market, since consumer surplus depends on the area under the demand curve up to the quantity purchased.

Potential nuances and why the provided option might claim a range:
- If the market composition or different consumer subgroups respond differently (some drivers are very sensitive to motor oil prices, while others are less affected), the aggregate effect on gasoline consumer surplus could be less predictable in the short run. In some hypothetical scenarios, certain external factors (like substitution toward alternative fuels, changes in price expectations, or inventory effects) could momentarily offset the direct cross-price effect, leading to a situation where CS could appear to increase for a period or remain relatively unchanged.
- Additionally, how consumer surplus is measured (e.g., holding gasoline price constant while motor oil price changes vs. observing total welfare changes) can yield different interpretations of the impact on CS alone.

Given these considerations, an answer choice that states the effect could be "may increase, decrease, or remain unchanged" acknowledges the potential for nuanced or mixed outcomes across different assumptions, subpopulations, or measurement approaches. However, in the standard, straightforward model with typical complement goods and a direct cross-price effect, one would usually expect consumer surplus in the gasoline market to decrease when motor oil prices rise, due to reduced joint consumption.

Since the actual answer options are missing, we cannot map this reasoning to a specific labeled choice. The provided answer text indicates option d weighing multiple possibilities, which aligns with a cautious acknowledgment of potential variability, yet it does not commit to a single common outcome.

ECB1101 - S1 2025 Online Quiz 5

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market

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