Businesseconomicsweek2

Microeconomic issues:

If the price of gas is $2.00 per liter, people may be willing and able to purchase 50 liters per week, on average. If the price drops to $1.75 per liter, they may be able to buy 60 liters. At $1.50 per liter, they may be prepared to purchase 75 liters. Note that while some gas usage is essential – driving to work, for example – some use is optional. Therefore, as gas prices drop, people may choose to make more optional trips during weekends, and so on.

The resulting demand schedule for gas looks like this.

|Buyer Demand per Consumer |

|Price per liter |Quantity (liters) |

| |demanded per week |

|$2.00 |50 |

|$1.75 |60 |

|$1.50 |75 |

|$1.25 |95 |

|$1.00 |120 |

This schedule illustrates the law of demand: as price falls, the corresponding quantity demanded tends to increase. Since price is an obstacle, the higher the price of a product, the less it is demanded. When the price is reduced, demand increases.

So, there is an "inverse" relationship between price and quantity demanded. When you graph the relationship, you get a downward-sloping line like this:

[pic]

We find that oil companies are willing and able to supply certain amounts of gas at certain prices, as seen below.

|Gas Supply per Consumer |

|Price per liter...