Let D₀ and S₀ Be the Initial Demand and Supply

question 31

Multiple Choice

Let D₀ and S₀ be the initial demand and supply curves for gasoline. Let P₀^* and Q₀^* be the initial equilibrium in this market. The war in Iraq comes to an end. Iran and Afghanistan lay pipes to generate more oil. US and Venezuela enter an era of friendship. Which ONE of the following correctly captures the effect of this change on the market for gasoline?

• A) Both equilibrium quantity and price will increase
• B) Both equilibrium quantity and price will decrease
• C) Equilibrium quantity will increase, but equilibrium price will decrease
• D) Equilibrium quantity will decrease, but equilibrium price will increase

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