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May 23, 2015

Homework Help: MICROECONOMICS

Posted by Lamia on Monday, April 23, 2007 at 5:29pm.

This is really long but i really need help!! THX

In 1973, there was a war between some arab countries and Israel. Many western countries wanted to help Israel. Some arab oil exporting countries have reacted by cutting oil exports to those countries. Prices went up. The prices remained high during the following years. They have started to decrease in the 80s and in 1986 they reached very low levels.
1.Why the prices went up? (show on a graph the effect of the political events on the equilibrium price; was this an effect of the demand or supply? Show the supply and demand before and after the embargo)
2.What do you think about the elasticity of demand for oil in the following days or months of the embargo? Why those countries were badly affected by the embargo the following months of that event?
3.Assume that supply didnít increase (the same as during the embargo). After some years, prices went down; explain how could this happen using a graph and comment briefly on your graph (show what happened to the supply and demand and explain why and how this induced such low prices in the 80s?

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