Question

Learning Objective: 1. Define economics, macro and micro, and how economic questions are posed. Develop the baseline for the economic way of thinking.

Assessment Objectives:

• Identify factors that affect demand.

• Graph demand curves and demand shifts.

• Identify factors that affect supply.

• Graph supply curves and supply shifts.

• Analyze market outcomes such as changes in equilibrium price and quantity.

Question 1: 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 which curve would shift: the supply curve or the demand curve. Then state whether the curve would shift to the right (an increase in supply or demand), or shift to the left (a decrease in supply or demand). Explain, which determinant of demand or supply is affected.

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

2. The winter is exceptionally cold.

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

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

5. Landlords install additional insulation in buildings.

6. The price of solar energy falls dramatically.

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

8. Price of oil increases.

Your Answers:

Question #	Would the demand curve or supply curve shift?	What determinant of demand or supply is affected?	Would the curve shift to the right or left?	Changes in the equilibrium price	Changes in the equilibrium quantity
Example	Demand	Tastes and Preferences	Right	increases	increases
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Answer 1

Question #	Would the demand curve or supply curve shift?	What determinant of demand or supply is affected?	Would the curve shift to the right or left?	Changes in the equilibrium price	Changes in the equilibrium quantity
Example	Demand	Tastes and Preferences	Right	deincreases	increases
1	Demand curve	Tastes and preferences as preferences is for fuel-efficient cars.	Left (decrease)	Decreases	decreases.
2	Demand curve	Tastes and preferences	Right.	Increase	Increase.
3	Demand curve	Size of the market	Left	Decrease	Decrease.
4	Supply curve	Number of sellers in the market falls.	Left	Increase	Decrease
5	Demand curve	Size of the market	Left	Increase	Decrease
6	Demand curve	Substitute goods	Left	Increase	Decrease
7	Demand curve	Size of the market	Right.	Increase	Increase.
8	When price of oil rises, there is a movement along the demand curve. The quantity demanded will fall.