Question

Consider a situation where two gas stations located across the street from each other are charging different prices. The Exxon gas station is charging 50 cents more per gallon of each type of gasoline than the Shell gas station. The equilibrium can be restored if:Please choose the correct answer from the following choices, and then select the submit answer button.a. the Exxon gas station reduces the prices.b. the Shell gas station reduces the prices.c. the Exxon gas station increases the prices.d. both stations reduce their prices by 50 cents per gallon.

Answer 1

Answer: Option (a) is correct.

Explanation:

(a) The equilibrium can be restored if Exxon gas station reduces the prices. This change will achieve equilibrium.

(b) If the shell gas station reduces the prices, then the gap between the price charged by Exxon gas station and shell gas station become larger. So, this change will not be able to achieve equilibrium.

(c) If Exxon gas station increases the prices, this will also results in larger gap between price charged by Exxon gas station and shell gas station. So, this change will not be able to achieve equilibrium.

(d) If both stations reduce their prices by 50 cents per gallon, the gap remains the same. So, this change will not be able to achieve equilibrium.