Market equilibrium exercise Problem 2. Gas priceGas prices have become remarkably high since the beginning of the year 2022. On June 9th,2022, a gallon of gasoline costs 4.06 dollars---almost 400% higher than it was on the samedate of 2020 ($1.1 per gallon). We will apply what we learned about demand and supply totake a look at gas prices.Suppose that in 2020, the worldwide daily supply function of gasoline is given byQs(p) = 150 + 100p.The daily demand of gasoline in 2020 is:QD(P) = 300 - 50p,where p is the price per gallon of gasoline and q is in the unit of million gallons.a) Solve for the market equilibrium for daily gasoline in 2020. What is the equilibriumprice? What is the equilibrium quantity?b) In the summer of 2022, people started to return to offices and to traveling. Thisleads to an outward shift of the demand. Suppose now that the demand becomes:QD (P) = 700 - 50p.In the meantime, the supply-chain problems and the Ukrainian war has led to aninward shift of the supply. Suppose the supply becomes:Qs(p) = 100 + 100p.What is the new equilibrium price and what is the new equilibrium quantity?

Market price is determined by the interaction of demand and supply. when demand and supply interact,…

Answered: Gas prices have become remarkably high…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Market equilibrium exercise

Problem 2. Gas price
Gas prices have become remarkably high since the beginning of the year 2022. On June 9th,
2022, a gallon of gasoline costs 4.06 dollars---almost 400% higher than it was on the same
date of 2020 ($1.1 per gallon). We will apply what we learned about demand and supply to
take a look at gas prices.
Suppose that in 2020, the worldwide daily supply function of gasoline is given by
Qs(p) = 150 + 100p.
The daily demand of gasoline in 2020 is:
QD(P) = 300 - 50p,
where p is the price per gallon of gasoline and q is in the unit of million gallons.
a) Solve for the market equilibrium for daily gasoline in 2020. What is the equilibrium
price? What is the equilibrium quantity?
b) In the summer of 2022, people started to return to offices and to traveling. This
leads to an outward shift of the demand. Suppose now that the demand becomes:
QD (P) = 700 - 50p.
In the meantime, the supply-chain problems and the Ukrainian war has led to an
inward shift of the supply. Suppose the supply becomes:
Qs(p) = 100 + 100p.
What is the new equilibrium price and what is the new equilibrium quantity?

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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Follow up question regarding elasticities and taxes.

c) What is the demand elasticity at the equilibrium of 2022? What is the supply
elasticity? Which one is more elastic?
d) High gas prices have imposed a great burden on consumers. Suppose that the
government now wishes to protect consumers by taxing gasoline supply and
considers to impose a $0.5 tax per gallon on gas suppliers. What is the equilibrium
price and quantity after tax?
e) Calculate the burden of this proposed tax; what percent of the tax would be "paid"
by consumers (Round to nearest percent)? How is this related to your answer in
part c)?
f) What is the amount of deadweight loss created by this policy? Is this policy a good
idea?

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