If you go to the gas station and see that the price of gasoline is unchanged, which of the following statements best explains this observation from an economic perspective?

• A. Government price controls are preventing gasoline prices from changing.
• B. There has been a sudden increase in demand for gasoline, causing prices to remain constant.
• C. The cost of producing gasoline has increased, but sellers have not adjusted prices yet.
• D. The market for gasoline is currently in equilibrium, with quantity supplied equal to quantity demanded.

Answer: (D)

Verified step by step guidance

1. Understand the concept of market equilibrium: This occurs when the quantity of a good supplied equals the quantity demanded at the current price, resulting in no pressure for the price to change.
2. Analyze the role of price controls: Government price controls can fix prices, but if the price is unchanged due to natural market forces, price controls are not the explanation.
3. Consider the effect of demand changes: A sudden increase in demand typically causes prices to rise unless supply adjusts accordingly; constant prices suggest demand and supply are balanced.
4. Evaluate supply cost changes: An increase in production costs might lead sellers to raise prices, but if prices remain unchanged, it implies either costs haven't changed significantly or the market is absorbing the change.
5. Conclude that unchanged prices indicate equilibrium: Since the price of gasoline is stable, the most reasonable explanation is that the market is in equilibrium, where quantity supplied equals quantity demanded.