Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market
a. Decreases.
b. Is unchanged.
c. Increases.
d. May increase, decrease, or remain unchanged.
The correct answer and explanation is :
The correct answer is:
a. Decreases.
Explanation:
Motor oil and gasoline are considered complementary goods, meaning that they are often used together. When consumers purchase gasoline, they also tend to purchase motor oil, as both are required for the operation and maintenance of a vehicle. In economic terms, the relationship between complementary goods is such that a change in the price of one good can impact the demand for the other.
Let’s break down the situation step by step:
- Effect of an Increase in the Price of Motor Oil:
If the price of motor oil increases, consumers are likely to purchase less of it because of the law of demand—when the price of a good rises, the quantity demanded generally falls, assuming all other factors remain constant. This leads to a reduction in the consumption of motor oil. - Impact on Gasoline Demand:
Since motor oil and gasoline are complements, a decrease in the quantity demanded for motor oil typically leads to a reduction in the consumption of gasoline. When consumers buy less motor oil, they are likely to reduce the number of trips they make or the amount of gasoline they use, thus leading to lower demand for gasoline. - Consumer Surplus in the Gasoline Market:
Consumer surplus refers to the difference between what consumers are willing to pay for a good and what they actually pay. When the demand for gasoline decreases, the equilibrium price of gasoline will likely fall, and the quantity of gasoline consumed will also drop. As a result, consumers may experience a reduction in their overall consumer surplus in the gasoline market because they are now consuming less gasoline at a lower price, reducing their total satisfaction from the market.
In summary, an increase in the price of motor oil leads to a decrease in demand for gasoline due to the complementary nature of the two goods. This decrease in demand results in a reduction in consumer surplus in the gasoline market. Therefore, the correct answer is that consumer surplus in the gasoline market decreases.