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Shocks in the market for gas

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Econ 203 Mid-term Workforce Assessment:  Shocks in the Market for Gas 

A key skill in economics is the ability to use the theory of supply and demand to analyze specific markets. In this assessment, you will demonstrate your ability to analyze the effects of several "shocks" on the market for gas at service stations. 

Carbon tax: Suppose the government imposes a carbon tax on oil production.

  1. Will this affect the supply or the demand for gasoline? Why? Which determinant of demand or supply is being affected?
  2. Show graphically with before and after curves on the same axes.
  3. How will this change the equilibrium price and quantity of gasoline? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)
  4. Electric cars: Now consider the invention of cheap electric vehicles.
  5. Explain how you imagine the invention of cheap electric cars would affect the market (demand or supply) for gasoline? Why? Which determinant of demand or supply would be affected?
  6. Show graphically with before and after curves on the same axes.
  7. How will this change the equilibrium price and quantity of gasoline? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)
  8. Combine Cases 1 and 2: Suppose that a carbon tax is imposed and electric cars become common.
  9. What will the combined impact be on the equilibrium price and quantity of gasoline? Explain your reasoning and show graphically. 

Reference no: EM132443633

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