Question

In: Economics

graphically analyze whether there is a movement or a shift in the appropriate curve and then...

graphically analyze whether there is a movement or a shift in the appropriate curve and then determine the effect on the equilibrium price and quantity.

in the gasoline market:

IF there is a rumor among producers of another oil embargo which will cause a prices to go up.

An oil embargo actually takes place.

Solutions

Expert Solution

a) When there is only an expectation of embargo in the oil-producing nation, such expectation will lead to an increase in the demand for petroleum and it raises the price and quantity sold in the market. It will shift the demand curve and people will be demanding more petroleum at the given price, this increasing demand will increase the supply of petroleum and demand curve will shift to the right. The end result will be higher demand and higher supply due to expectation if embargo.

b) If oil embargo really takes the place it will shift the supply curve to a higher price and lesser quantity supplied at that price. At the high equilibrium price due to fewer supply people will be demanding less. The supply curve will shift to the left and the new equilibrium price will be higher and quantity supplied will be lesser.


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