What would happen to the price and quantity demanded andor s

Solution

Gasoline is a daily essential consumption item. Demand depends upon price. If price is high consumption will decrease. But due to its essential nature, demand will not drop much. Thus high price will mean consumer has to suffer. It will affect seriously if consumer is poor. As it is a monoply item, price can be kept high by its producer. It will aggravate sufferings of poor.

Government of a country try to maximize welfare. So it may decide to impose a price ceiling. It will lower the cost of gasoline. Poor will be benefitted. Demand will rise. But due to its essential character, it is inelastic. So demand will increase at a rate lower than change in price. Due to imposition of ceiling, supply will decrease. But impact of increase in demand will be more. So ultimately economy policy will be successful provided government has control on its supply.