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1: Refiners buy crude oil from companies with oil fields, and the refiners sell their gasoline product in the gasoline wholesale market to gasoline retailers - the service stations. Suppose that the perfect competition model reasonably describes the wholesale market for gasoline.
A: Suppose that the global price of crude oil were to rise. Below draw a supply-and-demand diagram that shows what would happen to the demand and/or supply curves in the wholesale gasoline market in which refiners sell to gasoline stations. Also state whether the wholesale price of gasoline would rise or fall, and state whether the quantity of gasoline sold in the wholesale market would rise or fall.
B: Suppose instead that the government were significantly to increase the tax on each gallon of gasoline that consumers must pay at the retail pump. As a result of the change in the tax rate at retail, below show what would happen to the demand and/or supply curves in the wholesale gasoline market. Also state whether the wholesale price of gasoline would rise or fall, and state whether the quantity of gasoline sold in the wholesale market would rise or fall.
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