Home / Questions / Illustrate and Explain Suppose that the initial market equilibrium price of gasoline
B. Illustrate and Explain 1. Suppose that the initial market equilibrium price of gasoline, P1*, is $3.00 per gallon (P1 $3.00) and the initial market equilibrium quantity is Q*. Suppose that at the initial market equilibrium, gasoline demand is inelastic and gasoline supply is elastic. In the graph below, illustrate and explain the effect of a decrease in the price of crude oil (say from $75/barrel to $50/barrel) on the total revenue of gasoline producers. Justify your conclusion by showing graphically the effects on total revenue caused by (i) the change in the equilibrium price of gasoline and (ii) the change in the equilibrium quantity of gasoline. Recall that crude oil is an input of gasoline. (10 points) Please make sure that your text boxes can be read easily! Thanks! Price, P (S/Q) Quantity, Q (units)
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