Answer to Question #94903 in Microeconomics for Gurleen

Question

The price of crude oil rises and the price of car also rises at the same time what is the effect of this would be on market price and the price of gasoline explain it with the help of diagram?

Answer 1

The price of crude oil rises and the price of car also rises at the same time, as a result the demand for gasoline will decrease as cars and gasoline are substitutes, and the supply of gasoline will decrease, because its production costs increase. So, the market price of gasoline may increase or decrease, but the market quantity will decrease.