Suppose the market for gasoline is in equilibrium Draw a dia

Suppose the market for gasoline is in equilibrium. Draw a diagram below of such a market. Next, suppose that it is found that com can be used to produce ethanol, which can be added to gasoline, effectively adding to the amount of gasoline available. Show what happens to the market for gasoline after ethanol is employed by the market. That is, show what happens to the equilibrium price and quantity of gasoline.

Solution

Answer:

Suppose the market for gasoline is in equilibrium at point ‘E’ with price ‘P’ and quantity ‘Q’. It has shown in the following diagram:

If the market for gasoline is employed by the market, what happens to the equilibrium of gasoline after ethanol?

            The market demand curve for gasoline will shift to the right while the market supply curve for gasoline will shift to the left. Then the equilibrium of quantity may rise, fall or stay the same while the equilibrium price will increase.

            The following three graphs explain illustrate this idea and taken on x-axis is Quantity and on Y-axis is Price.

The graph (1) shows that there is no change in quantity.

The graph (2) shows that the quantity has decreased.

The graph (3) shows that the quantity has increased.