When demand is D2 and supply is S1, there is an excess demand of 4,000 gallons per month at a price of $1.00 per gallon. If demand is D1 and supply is S2, the equilibrium quantity is 8,000 gallons per month.
b. Compare two equilibriums. In the first, demand is D1 and supply is S1. In the second, demand is D1 and supply is S2. By how much does the equilibrium quantity change? By how much does the equilibrium price change?
c. If supply falls from S2 to S1 while demand declines from D2 to D1, does the equilibrium price rise, fall, or stay the same? What if only supply falls? What if only demand falls?
d. Suppose that supply is fixed at S1 and that demand starts at D1. By how many gallons per month would demand have to increase at each price level such that the equilibrium price per gallon would be $3.00? $4.00?
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