Let D₀ and S₀ Be the Initial Demand and Supply

question 30

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. There is an increase in incomes due to a tech boom. 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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Definitions:

FICA Taxes

Taxes imposed on both employers and employees to fund Social Security and Medicare.

Social Security

A government program that provides financial assistance to individuals during retirement, disability, or upon the death of a parent or spouse.

Medicare

A federal healthcare program primarily for people aged 65 and older, providing coverage for various medical services.

FICA Tax

Federal Insurance Contributions Act tax used to finance federal programs for old-age and disability benefits (social security) and health insurance for the aged (Medicare).