"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 u
What will be an ideal response?
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.
You might also like to view...
If the price of a commodity increases as the result of increased demand, you would expect the:
A) supply to increase. B) quantity supplied to increase. C) quantity supplied to decrease. D) supply curve to shift to the right.
Government imposed price controls often lead to
A) illegal trades of the good. B) the most efficient use of resources. C) the equilibrium solution in terms of price and quantity. D) maximization of profits.