Market-Clearing Price/ Equilibrium
Market-Clearing Price/ Equilibrium Name ______
Why are the gas prices so high? Date _____ Hour ____
Please use the graph below to answer the following questions.
1) Label the equilibrium or market-clearing price on the graph.
2) What is the equilibrium price ______quantity ______
3) If the price is above equilibrium level- say $10 – what would happen? Which is bigger- what producers are willing and able to supply or what consumers are willing and able to purchase? (HINT- read the graph)
At a price of $10, quantity supplied is ______
quantity demanded is ______
Which is larger? What is this called in economics? ______
Give an example where you might see this in real life:
4) If the price is below equilibrium level – say $2- what would happen? Which is bigger- what producers are willing and able to supply or what consumers are willing and able to purchase? (HINT- read the graph)
At a price of $2, quantity supplied is ______
quantity demanded is ______
Which is larger? What is this called in economics? ______
Give an example where you might see this in real life:
5) In which part of the graph do you think you would be more likely to see a black-market or illegal activity? Why?
For each of the following graphs, draw in the new curve and determine what happens to the equilibrium price and quantity? Will they increase or decrease? Provide a scenario or real-life example where this might happen.
6) Increase in Demand 7) Decrease in Demand
EQ price ____ EQ price _____
EQ quantity ___ EQ quantity ____
Example: Example:
8) Increase in Supply 9) Decrease in Supply
EQ price ____ EQ price _____
EQ quantity ___ EQ quantity ____
Example: Example:
For the following examples draw your own graphs describing the situation. Make certain to label everything! Also figure out what might happen to the new EQ price and quantity. (HINT- in some situations, you might not be able to determine an exact answer for the new EQ price and quantity. It might be indeterminate)
10) Increase in Supply and Demand
EQ price ____ EQ quantity _____
11) Decrease in Supply and Demand
EQ price _____ EQ quantity __
12) Increase in Supply and Decrease in Demand
EQ price ____ EQ quantity ____
13) Decrease in Supply and Increase in Demand
EQ price _____ EQ quantity ______
IN CLASS: What happened in the market for Gasoline? Why are the gas prices so high?
14) Draw a simple demand and supply graph for the Gasoline market in the space below. Make sure to label everything!
15) In the market for Gasoline, our evidence leads us to conclude that 2nd and 3rd world countries are continuing development at a rapid pace. Chevron CEO David O’Reilly states “In India you’ve seen almost 9% annual growth for five years. You’ve seen the impact of the population, the number of people who are driving cars, the amount of energy they’re using to drive their industries, the improvement in quality of life” (Colvin, Geoff. “The Price of Oil,” Fortune, Dec. 10, 2007). Show what this would look like on your graph.
16) In addition, this same evidence states that Governments in almost all oil-rich countries are trying to win a greater share of the industry’s bumper profits and deter private investment. OPEC countries meet regularly to set limits on the amount of oil released for sale. Many (A Crude Awakening) are concerned that we have reached “peak oil” production capacity; there are no new oil fields to be found. Illustrate what this looks like on the above graph.
18) What do you predict to be the future of the market for gasoline? Will consumers and producers change?