Let D₀ and S₀ Be the Initial Demand and Supply

question 38

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 OPEC cartel that reduces the production of world oil by several million barrels a day. 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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