If the average price of gasoline is $3.25 per gallon in your town, and gasoline is perfectly competitive market, explain what might happen and why in your town if the price of gas dropped to $0.50 overnight. What if it jumped up to $10 per gallon overnight? a. If the price of gasoline were to suddenly drop overnight to $0.50, the quantity of gasoline bought and sold would
Answers: (stay the same, decrease, or increase)

.
b. If the price of gasoline were to suddenly jump to $10 per gallon, the quantity of gasoline bought and sold would
Answers: (stay the same, decrease, increase)

.

Given :

Average price of gasoline $3.25 per gallon in a town .

To Find :

The impact if the price of gas dropped to $0.50 overnight and if it jumped up to $10 per gallon .

Solution :

We know , according to law of demand :

Demand is in inversely proportional to the price of the product if all other constraint remains constant .

a )

If the price of gasoline were to suddenly drop overnight to $0.50 , so the price of product will decrease and by law of demand , the demand will increase which cause quantity of gasoline bought and sold increase .

b )

If the price of gasoline were to suddenly jump to $10 per gallon , it cause in increase in price , which will decrease the quantity of gasoline bought and sold .

Hence , this is the required solution .

b is the correct answer

answer; conceptual skills;