use demand and supply model to analyze events on market

Expert Solution

Market such as oil is heavily dependent on demand and supply mechanism. In March, because of the pandemic the future oil prices declined drastically and even went negative.

This essentially meant that there was too much supply in the market and as demand had reduced drastically, oil prices plunged, leading to disruption in the market and countries cutting down supply as there was limited availability onshore to store oil.

Thus as demand falls prices decreases and if supply doesn't fall, then prices continue to decline. Vice versa prices increase because of higher demand, and reduced supply in the market.

Thus in the market currently the oil prices have recovered as demand has picked up and countries cut down the supply of oil because of limited space storage availability.

Governments sometimes exploit when demand is inelastic, meaning when price increases, even then the demand doesn't fall, people still continue to consume oil and other essential commodities, thus as the demand is inelastic, governments impose a tax so that they are able to exploit this and earn greater revenues.

Rahul Sunny answered 2 years ago

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