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12 June, 09:55

As a result of increased tensions in the Middle East, oil production is down by 1.21 million barrels per day - a 5 percent reduction in the world's supply of crude oil. Explain the likely impact of this event on the market for gasoline and the market for small cars. The gasoline market will have:A. higher equilibrium prices and higher equilibrium quantity. B. lower equilibrium prices and higher equilibrium quantity. C. lower equilibrium prices and lower equilibrium quantity. D. higher equilibrium prices and lower equilibrium quantity. The small car market will have:A. higher equilibrium prices and lower equilibrium quantity. B. higher equilibrium prices and higher equilibrium quantity. C. lower equilibrium prices and higher equilibrium quantity. D. lower equilibrium prices and lower equilibrium quantity.

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  1. 12 June, 13:41
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    Gasoline market

    D. higher equilibrium prices and lower equilibrium quantity

    Car market

    A. higher equilibrium prices and lower equilibrium quantity

    Explanation:

    As the demand supplies decreases, the equilibrium quantity will decrease while the price increase Assuming everything else remains constant.

    The car market from which gasoline plays a lead cost of the automobile industry will also suffer a decrease in the supply as higher input cost makes the price go up.

    Higher input cost makes supply decrease as well.

    Also the demand for car will decreaase as the maintenance cost associate with a car may decrease the demand

    This will defenetively decrease the quatity and make the price go up.
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