Competitive Analysis and Business Cycles
How do changes in supply and demand effect oil prices?
The demand for oil may or may not decrease even when the price remains constant. The reasons why the demand may change are changes in income, changes in needs, changes in the number of consumers in the market, expectations of future price, and prices of substitute or compliments change Explain what happens to quantity of oil demanded when the price of oil decreases, assuming that the supply doesn’t change. (Hint: Law of demand, movement along the curve). The quantity of oil demanded will increase when the price of oil decreases. If the supply doesn’t change there will shortages in oil. The demand for oil increased so the demand curve would shift to the right. Explain what happens to the price of oil and quantity of oil supplied when Congress approves drilling for the reserves in Alaska, assuming that the demand doesn’t change. (Hint: Law of supply, movement of the curve). When Congress approves drilling for the reserves in Alaska, assuming the demand doesn’t change, the quantity of oil supplied would increase resulting in a surplus of oil. The prices of oil would fall. Since the quantity of oil supplied increased, it would result in the supply curve shifting to the right. Explain what happens to the price of oil and quantity of oil demanded when if China experiences rapid economic growth, assuming that the supply doesn’t change. (Hint: Law of demand, movement of the curve). The price and quantity of oil demanded would increase if China were to experience a rapid economic growth. When the demand increases it will cause the demand curve to move to the right. Gas prices have reached record highs in many states. Would you advocate a price control for oil so that you pay less than the market price at the pump? Why or why not? (Be sure to include your own research to support your answer. You can also review the 1973 oil crisis). I...
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