Question

2. Find each of the following articles online and use it to answer the given questions.

a) https://www.forbes.com/sites/rrapier/2017/11/26/fear-will-drive-oil-prices-in-2018/#762158552a1f

I) In the section The Cycle of Fear, is the description of what is happening more consistent with demand or supply shifts? Draw a picture consistent with your answer and explain why the resulting price change in your picture is consistent with the article. (1 point)

II) Do the same as (I) for the section Enter the Shale Boom (1 point)

III) At the end of the article, they predict higher prices in 2018 from two different factors. Draw a diagrams showing why both of these factors (two different shifts) would cause higher oil prices. (1 point)

b) https://www.marketwatch.com/story/netflix-earnings-analysts-await-update-on-how-price-increases-are-affecting-growth-2018-01-17. Note that diagrams may be helpful, but are not required for this question.

I) For the moment, only consider the information through the 7^th(?) paragraph (which starts “[That] suggests the service …). If we are looking at the market for NETFLIX subscribers, is this part of the article discussing

            i) Demand or Supply?

            ii) A shift or a movement along the curve?

Be sure to explain why you come to these conclusions. (1 point)

II) If we go a few paragraphs further (“While Netflix raised prices …) would that change you answer to either (i) or (ii) above? Why?

c) http://abcnews.go.com/Business/story?id=5017914

i) The 3^rd paragraph talks about causes of increased food prices in the 70’s. Would all of these causes shift the same curve or different curves? Draw a diagram of the food market consistent with your answer to that question.   Be specific about which curve you shifted and why. (1 point)

ii) Four paragraphs later, it lists several reasons for the current increases. This are different than in the 70’s. Does that mean that a different curve is shifting? Draw a diagram and explain.

(1 point)

Answer 1

I) In Cycle of Fear, the price change, that is, price rise is consistent with rise in demand. The slow responsiveness of supply as quoted in the artice saying that the production of oil remained almost flat, with respect to rising demand has led to rise in oil price.

II) In Enter the shale boom, due to technological developments in production of Shale oil in U.S. there was now competition in the oil market. To maintain a hold on the oil market, OPEC further supllied oil which led to increase in supply of oil as compared to demand for oil. Consequently there was a sharp fall in oil price. Thus this price change was more consistent with supply rather than demand.

III) Higher rices of fuel oil in 2018 are due to following two factors:

(i) OPEC countries have since 2016 decided to rebuild their inventories of oil and hence have cut down on oil supplies.

(ii) Cycle of fear: the fear that there will be a terminal declinein oil production will surge oil prices.

While the former will lead to leftward shift in supply curve, latter will lead to leftward shift in demand curve, the net effect thus will be rise in price of oil.