Technological innovations in oil drilling have decreased the cost of producing propane gas. a. Show this...

Technological innovations in oil drilling have decreased the cost of producing propane gas.

a. Show this change graphically in a supply and demand diagram for propane. Clearly label your curves and equilibrium price and quantity both before and after the change in technology

.b. If the demand for propane increases significantly during the summer as more people grill outside, what will be the net impact of this change in demand combined with the change from (a) on market equilibrium price and quantity of propane?

Solutions

Expert Solution

a) Technological Innovation that have decreased the cost of Producing propane Gas leads to an increase in Supply of Propane Gas. In the Graph below be can be seen as a rightward Shift in the supply Curve of Propane. This leads to a Decrease in price from P1 to P2 and Increase in Quantity from Q1 to Q2.

b) Increase in demand of Propane in summer leads to a rightward Shift in the Demand Curve of Propane in the Graph below. If this is combined with an increase in Supply of Propane in a), then net impact on Market equilibrium price is uncertain. Market price can increase, Decrease or remain unchanged depending upon the relative size of the shift in both curves. However, in the Graph below, I have shown that the size of Shift of both Supply and Demand curves is equal. Because of this price will remain unchanged.

However, equilibrium Quantity of Propane will definitely Increase.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

An oil company is drilling a series of new wells on the perimeter of a producing...

An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 17% of the new wells will be dry holes. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 40% of new wells that strike oil produce only 2,200 barrels a day; 60% produce 6,200 barrels per day. a. Forecast the annual cash revenues from a new perimeter well. Use a future oil price...

"An oil and gas company is considering whether to begin drilling a new oil field. The...

"An oil and gas company is considering whether to begin drilling a new oil field. The company will need to pay $4.6 million as an initial investment in order to extract the oil. The company will operate the field for a total of 5 years, during which its annual profit will be $3,344,000. During the 6th year, the company will not operate or gain any revenue from the oil field, but it will need to pay $8,990,000 in environmental remediation...

Deep Sea Drilling is evaluating drilling for oil in the Gulf of Mexico. It will cost...

Deep Sea Drilling is evaluating drilling for oil in the Gulf of Mexico. It will cost $830 million to buy an oil rig. Drilling would start immediately. The company has a cost of capital of 9%. There is a 50% probability that the new well will be successful, in which case the free cash flow from the well will be $200 million per year for 20 years. Otherwise, it will only generate $40 million per year for 10 years. Part...

Deep Sea Drilling is evaluating drilling for oil in the Gulf of Mexico. It will cost...

Deep Sea Drilling is evaluating drilling for oil in the Gulf of Mexico. It will cost $830 million to buy an oil rig. Drilling would start immediately. The company has a cost of capital of 8%. There is a 50% probability that the new well will be succcessful, in which case the free cash flow from the well will be $200 million per year for 20 years. Otherwise, it will only generate $40 milion per year for 10 years. PART...

Technological changes have decreased the cost and increased the speed of information dissemination in security market....

Technological changes have decreased the cost and increased the speed of information dissemination in security market. As the Technology is agile and keep on evolving day by day so, the impact of it may affect the security price. Technology has made possible the fastest means of the communication and data dissemination in all the fields. In order to know the price of the security then open your connection start surfing for it, you will have the value for your searched...

What are the profit margins at drilling wells, oil refinerys, gas storage places and gas stations?

There are many operations in oil and gas industry such as drilling, casing, cementing, perforation, well...

There are many operations in oil and gas industry such as drilling, casing, cementing, perforation, well logging and well stimulation. Mention the possible hazard (2.5 marks) and safety measures (2.5 marks) that an engineer must keep in mind during cementing operation.

explain how changes in diversity and technological innovations have affected universities in usa?

Question A Part 1 Suppose there is a technological advance that reduces the cost of producing...

Question A Part 1 Suppose there is a technological advance that reduces the cost of producing computer chips. Use supply and demand curves to analyse the effects in the following markets: a.market for computers.[5marks] b.market for computer software.[5marks] c.market for typewriters.[5marks] Part 2 Explain with the aid of an example, the law of demand and the law of supply[4 marks] b.Outline four factors which affect price elasticity of demand[4marks] c.The price elasticity of demand for coca cola has been calculated...

An increase in wages of oil rig workers has increased the cost of producing oil. How...

An increase in wages of oil rig workers has increased the cost of producing oil. How is the supply curve affected by this newly incurred cost? Represent graphically plot against the demand curve, label all points, and explain. How does a $20 dollar subsidy effect the supply curve of Oil per barrel? Represent graphically, plot against the demand curve and explain. Identify the type of good. Explain how the changes will affect demand. Pepsi price declines what happens to the...

Subjects