Instructions: This assignment will continue to help you to apply what you have learned about the supply and demand model. Please work together in a group to answer this question.
- In the mid-1990s the price of gasoline increased and the quantity also increased over time.
- How could a supply and demand model be used to illustrate this change? (Hint: consider either a shift in demand or a shift in supply as an explanation) Draw this graph.
- Discuss as a group and try to identify a real and significant economic event that occurred in the 1990s which could have brought about such as change?
- Consider the price elasticity of demand, income elasticity, and the price elasticity of supply (in the short-term) for gasoline.
- Overall, are consumers price elastic, unit elastic, or price inelastic towards gasoline? Discuss with your group to decide and provide one reason to justify the response.
- As a consumer of gasoline, how would you respond if your income suddenly decreased? Is this a typical response? Discuss with your group and report the responses and explain if they are mostly elastic, inelastic, or unit elastic.
- For firms that produce gasoline, how responsive can they be if the price of gasoline suddenly increases? How will this affect the shape of the supply curve in the short-run
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