demand and supply, respectively.) The outcome of lower Qd and higher Qs would be a surplus in the

gasoline market of 640 – 550 = 90 gallons.

2. To make it easier to analyze complex problems. Ceteris paribusallows you to look at the effect of one factor

at a time on what it is you are trying to analyze. When you have analyzed all the factors individually, you

add the results together to get the final answer.

3. a. An improvement in technology that reduces the cost of production will cause an increase in supply.

Alternatively, you can think of this as a reduction in price necessary for firms to supply any quantity.

Either way, this can be shown as a rightward (or downward) shift in the supply curve.

b. An improvement in product quality is treated as an increase in tastes or preferences, meaning

consumers demand more paint at any price level, so demand increases or shifts to the right. If this
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