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.  

  1. In the mid-1990s the price of gasoline increased and the quantity also increased over time.
  1. 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.
  2. 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.
  1. 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.
    1. 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.
    1. 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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