The Price Of Gasoline Was Higher In 2005 Than It Was

The Price Of Gasoline Was Much Higher In 2005 Than It Was In 2004 And

The price of gasoline was much higher in 2005 than it was in 2004 and yet roughly the same amount of gasoline was bought in both years. What can explain this? ______ A) The supply of gasoline stayed constant. B) The demand for gasoline increased from 2004 to 2005. C) The demand for gasoline does not follow the law of demand. D) None of these explain this.

Paper For Above instruction

The scenario presented involves a significant increase in the price of gasoline from 2004 to 2005 while the quantity of gasoline bought remains roughly unchanged. This situation appears counterintuitive when examined through the lens of classical economic principles, specifically the law of demand. According to the law of demand, an increase in the price of a good typically leads to a decrease in the quantity demanded, assuming all other factors are constant. However, the fact that the quantity purchased remained stable despite a price surge suggests that certain economic conditions or market dynamics are influencing this outcome.

The most plausible explanation among the given options is that the supply of gasoline remained constant, which corresponds to option A. If supply remained unchanged and demand remained stable, an increase in price could occur due to factors such as market speculation, geopolitical tensions affecting oil exports, or disruptions in related supply chains not captured by demand shifts alone. In such a case, the quantity of gasoline consumed would not necessarily decrease, because demand might be inelastic within the relevant price range, meaning consumers' quantity demanded does not change significantly with price changes.

Option B suggests that demand increased, which does not directly explain why the quantity remained the same in the face of higher prices. Usually, increased demand combined with higher prices would lead to an increase in total expenditure on gasoline but not necessarily translate into higher quantities if supply is constant and demand is elastic. Conversely, if demand is inelastic, consumers would continue purchasing roughly the same amount despite higher prices, but this enriches the explanation of inelastic demand rather than the increase in demand itself.

Option C hypothesizes that demand does not follow the law of demand, perhaps implying that demand is upward-sloping or has an unusual pattern. While such anomalies can exist, they are rare and generally not the primary reason in typical market conditions. Instead, market conditions that lead to stable quantities despite price variations can be better explained through supply-side factors or demand elasticity.

Option D states that none of these explain the phenomenon, but given the plausible explanations, the most fitting is that of a constant supply with inelastic demand, which aligns with the observed scenario. The key point here is that the inelastic nature of gasoline demand means consumers will keep buying roughly the same amount despite price increases, especially if there are no substitutes readily available or if gasoline is a necessity.

In conclusion, the best explanation for the unchanged quantity of gasoline bought despite a substantial price increase from 2004 to 2005 is that the supply remained constant, and demand was inelastic, allowing consumers to purchase nearly the same amount regardless of higher prices. This scenario underscores the importance of demand elasticity and supply stability in understanding market responses to price changes.

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