DUE IN 3 HOURS!!!

MICROECONOMICS PROBLEM

PLEASE ANSWER FULLY.

ASSIGNMENT 2:  Read the following two articles at the EIA (Energy Information Administration) website and the other article from MSN.com and use the information to model the increase in gasoline prices during 2012.  This requires the use of the market model developed and explained in Chapter 3.

Hint:  Please note that to successfully solve this problem you will need to move or shift the demand curve, the supply curve, or both based upon what you have read in the above identified articles from the eia and MSN.  I would strongly recommend reviewing the videos associated with this assignment and the information in Chapters 3 and 4 of the text that cover those items that will cause a supply or demand curve to shift to the left or right, i.e., decrease or increase.  Without mastery of this information, it will be difficult to correctly answer this assignment.

The seasonally-high retail prices are mostly a result of global crude oil prices, which have also been at record levels for this time of year. In general, the level of gasoline prices is mostly a function of crude oil prices. Because crude oil is the main driver of gasoline prices, weak U.S. gasoline demand has not translated into lower costs at the pump. However, compared to 1980, costs per mile driven are lower due to increased vehicle efficiency. Adjusted for inflation, costs per mile driven were about 23 cents in 1980. In February 2012, that number was estimated to be between 16 cents and 17 cents per mile.

U.S. gasoline demand this summer is expected to be the lowest in 11 years, while the average summer fuel price is forecast to be at a record level. High prices at the pump—mostly a result of global crude oil prices—and the use of more efficient vehicles both encourage reduced gasoline consumption.

Also, higher vehicle fuel efficiency should contribute to lower gasoline demand this summer. Higher gasoline prices, which are expected to be up an average of 24 cents per gallon this summer compared to last year, according to the April 2012 STEO, are also expected to reduce some highway travel, which will reduce fuel use.

VARIABLES THAT AFFECT THE DEMAND AND SUPPLY CURVE

Factors That Affect Demand Of Gasoline Oil	Factors That Affect The Supply Of Gasoline Oil
Price	Price
Vehicle Fuel Efficiency	Cost of Crude oil Inputs

Shifts curve to the right (+)

Shifts curve to the left (-)

These are just some of the variables that have effect on the supply and demand for gasoline. The price variable will be shown in the slopes of both the supply and demand curves. Change of other variables will result in the appropriate curve either shifting to the right or to the left. The direction of shift is indicated by the positive and negative signs in the parentheses: a (+) shows a shift right while a (–) shows a shift left.