Ã¯Â¿Â½PAGE Ã¯Â¿Â½ Ã¯Â¿Â½PAGE Ã¯Â¿Â½5Ã¯Â¿Â½ Gas Pipeline
Western International University
ECO/301 Economic Theory
January 11, 2007
A markets supply curve and demand curve intersect into what is called the markets equilibrium and the price at his intersection is called the equilibrium price and the quantity is called the equilibrium quantity. (Mankiw, 2004 Chap. 4 p.75)
In the case of Arizona's severely damaged pipeline, gas became scarce and prices rose causing consumer panic. Demanders are unable to buy all they want at the going price; therefore, causing the sellers to respond to the shortage by raising their prices. As the prices rise, quantity demands fails, quantity supplied rises, and the market moves towards the equilibrium. (Mankiw, 2004 Chap. 4 p.77)
If the government sets the legal price below the market level, there will be a shortage; customers will want to buy more units of the good than suppliers will want to sell.
When the supply of gas is disrupted, there is a decrease. There is a shift in the supply curve and the supply of the gasoline curves to the left and the resulting shortage of gasoline would cause an increase in the equilibrium price. (price controls) Due to the shortage of gas, the supply and demand curves will be affected. The supply curve will respond as expected as supplies rapidly deteriorated in this scenario.
Some would assume that if the price increased, this would result in a lowered demand but not always the case. Gasoline is a commodity that is necessary for travel to get back and forth to work. The increased demand for gasoline can potential push the curve to the right.
In figure 10, the same concept applies to gas. The shortage of gasoline increases the demand for gasoline which shifts the demand...