Exercise #1: Everyone’s Gasoline Problem. We are familiar with fluctuating prices of gasoline at the pump. Why does this happen? Research the recent history of gasoline pricing in your area, and attempt to relate any fluctuations you observe to documented supply and demand factors outline in our book. Be sure to cite any references used.
Below is the supply and demand curve that we review when observing gasoline prices going up in the field. Basically under normal conditions we see the equilibrium price being where supply intersects demand at EQ and EP. However, as we experience issues where manufacturers end up not supplying as much fuel as before we see supply shift to the left and this is seen in the supply graph S2. We also see equilibrium price move up because of this from EP to EP1. An example of such an incident occurred during the Katrina Hurricane back in August 2005. The hurricane damaged the 30 oil platforms and the closure of nine refineries. This reduction of oil production reduced the amount of supply of gasoline for the nation. Thus rising the price of gas nationwide.
Chapter 3 Question 14. Assume initially that the demand and supply for premium coffees (one-pound bags) are in equilibrium. Now assume Starbucks introduces the world to premium blends, and so demand rises substantially. Describe what will happen in this market as it moves to a new equilibrium. If a hard freeze eliminates Brazil’s premium coffee crop, what will happen to the price of premium coffee?
Now, initial setup for one-pound bags of premium coffee are at equilibrium. As Starbucks introduces the world to premium blends, the demand curve shifts to the right increasing the price of premium blend coffee. One will have to purchase coffee at this new equilibrium price as other coffee vendors enter the market to