and selling gasoline are not receiving enough cash to pay their workers and to cover their expenses. In this

situation, some producers and sellers will want to cut prices, because it is better to sell at a lower price than not

to sell at all. Once some sellers start cutting prices, others will follow to avoid losing sales. These price

reductions in turn will stimulate a higher quantity demanded. Therefore, if the price is above the equilibrium

level, incentives built into the structure of demand and supply will create pressures for the price to fall toward

the equilibrium.

Now suppose that the price is below its equilibrium level at $1.20 per gallon, as the dashed horizontal line at

this price in Figure 3.4 shows. At this lower price, the quantity demanded increases from 600 to 700 as drivers

take longer trips, spend more minutes warming up the car in the driveway in wintertime, stop sharing rides to
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