Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 2: Q.4 (page 77)

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium

price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram.

Create a sketch of the diagram if necessary.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b. The winter is exceptionally cold.

c. A major discovery of new oil is made off the coast of Norway.

d. The economies of some major oil-using nations, like Japan, slow down.

e. A war in the Middle East disrupts oil-pumping schedules.

f. Landlords install additional insulation in buildings.

g. The price of solar energy falls dramatically.

h. Chemical companies invent a new, popular kind of plastic made from oil.

Short Answer

Expert verified
  1. demand falls
  2. demand falls
  3. supply rises
  4. demand falls
  5. supply falls
  6. no effect
  7. demand falls
  8. demand rises

Step by step solution

01

demand and supply Q.4

  1. The demand curve is going to shift to the left, because fuel efficient cars are going to consume less oil as it gets more miles per gallon.
  2. In exceptional cold weather, people would avoid going outside, thus they will travel less by car. this will lead to fall in demand for oil.
  3. A major discovery of new oil off the coast of Norway will lead to rise in supply of oil.
  4. Slowdown of major oil-using nations like Japan will lead to fall in demand of oil.
  5. In case of a war in the Middle East disrupting oil pumping schedules, the supply falls.
  6. Landlords installation of additional insulation doesn't effect demand or supply of oil directly.
  7. When price of solar energy falls dramatically, the use of oil will be substituted by it. Thus demand for oil will fall.
  8. On invention of a new popular kind of plastic made from oil, the demand for oil will rise.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

In 2010, Americans smoked 315 billion cigarettes, or 15.75 billion packs of cigarettes. The average retail price (including taxes) was about \(5.00 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supply is 0.5.

  1. Using this information, derive linear demand and supply curves for the cigarette market.

  2. In 1998, Americans smoked 23.5 billion packs of cigarettes, and the retail price was about \)2.00 per pack. The decline in cigarette consumption from 1998 to 2010 was due in part to greater public awareness of the health hazards from smoking, but was also due in part to the increase in price. Suppose that the entire decline was due to the increase in price. What could you deduce from that about the price elasticity of demand?

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen

televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and

quantity of flat screen TVs?

Refer to Example 2.10 (page 81), which analyzes the effects of price controls on natural gas.

  1. Using the data in the example, show that the following supply and demand curves describe the market for natural gas in 2005–2007:

Supply: Q = 15.90 + 0.72PG+ 0.05PO

Demand: Q = 0.02 - 1.8PG+ 0.69PO

Also, verify that if the price of oil is \(50, these curves imply a free-market price of \)6.40 for natural gas.

  1. Suppose the regulated price of gas was \(4.50 per thousand cubic feet instead of \)3.00. How much excess demand would there have been?

  2. Suppose that the market for natural gas remained unregulated. If the price of oil had increased from \(50 to \)100, what would have happened to the free market price of natural gas?

Much of the demand for U.S. agricultural output has come from other countries. In 1998, the total demand for wheat was Q = 3244 - 283P. Of this, total domestic demand was QD = 1700 - 107P, and domestic supply was QS = 1944 + 207P. Suppose the export demand for wheat falls by 40 percent.

  1. U.S. farmers are concerned about this drop in export demand. What happens to the free-market price of wheat in the United States? Do farmers have much reason to worry?

  2. Now suppose the U.S. government wants to buy enough wheat to raise the price to $3.50 per bushel. With the drop in export demand, how much wheat would the government have to buy? How much would this cost the government?

Does a price ceiling change the equilibrium price?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free