The switch to the use of ethanol in gasoline is driven primarily by its relatively lower price.Assuming a competitive market,what effect would this change have on the equilibrium price and output for gasoline?
A)Price rises,output falls.
B)Price falls,output rises.
C)Price rises,output rises.
D)Price falls,output falls.

Question

Quizplus · Accepted Answer

Since ethanol is cheaper than gasoline, the cost of producing gasoline with ethanol would be lower than producing gasoline without ethanol. This would lead to an increase in the supply of gasoline and a decrease in its price. The increase in the supply of gasoline with ethanol will also lead to an increase in the quantity supplied or output. Therefore, the equilibrium price of gasoline will fall and the equilibrium output will rise.

The Switch to the Use of Ethanol in Gasoline Is