Question

In: Economics

Indicate how the newspaper headlines below affect supply and demand and equilibrium price and quantity. Each...

Indicate how the newspaper headlines below affect supply and demand and equilibrium price and quantity. Each headline describes a condition that affects either supply or demand, BUT NOT BOTH! You can simply draw up or down arrows.

A OPEC Nations Agree on Quotas:Cut Production

B New Vast Oil Reserves Discovered in North Sea

C Economic Recovery Spreads Worldwide

D New Gas-saving Engine Developed

E Truck & SUV Sales Skyrocket

Solutions

Expert Solution

(A)

OPEC Nations agree on Quota: Cut production.

This cut in production by OPEC nations will lead to decrease in supply of oil.

Given the demand for oil, this decrease in the supply of oil will result in a rise in equilibrium price and decrease in equilibrium quantity of oil.

(B)

New vast oil reserves discovered in north sea

This discovery of vast oil reserves will boost the production of oil and thus the supply of oil will increase.

Given the demand for oil, this increase in the supply of oil will result in a fall in equilibrium price and increase in equilibrium quantity of oil.

(C)

Economic recovery spreads worldwide

Worldwide spread of economic recovery will result in an increase in income across countries which in result will boost demand for oil. Thus, the demand for oil will increase.

Given the supply of oil, this increase in the demand for oil will lead to rise in equilibrium price and increase in equilibrium quantity of oil.

(D)

New gas-saving engine developed

The development of new gas saving engine will result in less gas being utilized to power the automobiles.

This will result in a decrease in demand for oil.

Given the supply of oil, this decrease in demand for oil will result in a fall in equilibrium price and decrease in the equilibrium quantity of oil.

(E)

Truck & SUV sales skyrocket

The increased sales of truck and SUVs will boost the demand for oil as well because two are complements of each other.

Thus, the demand for oil will increase.

Given the supply of oil, this increase in the demand for oil will lead to rise in equilibrium price and increase in equilibrium quantity of oil.

Rahul Sunny answered 1 year ago

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