Using a supply and demand diagram, illustrate the impact of each of the following on price and quanity demanded:
a. Improvements in transportation lower the cost of importing oil into the United States of the 1960.
b. After the 1973 war, oil producers cut oil production sharply.
c. After 1980, smaller automoblies get more miles per gallon.
d. A record breaking cold winter in 1995-1996 unexpectedly raises the demand for heating oil.
e. Rapid economic growth in the early 2000s leads to a sharp upturn in oil prices.
To illustrate the impacts of each of the scenarios on price and quantity demanded, we can use a supply and demand diagram. In this diagram, the price is represented on the vertical axis, and the quantity demanded is represented on the horizontal axis.
a. Improvements in transportation lower the cost of importing oil into the United States of the 1960:
When transportation costs decrease, it becomes cheaper to import oil into the United States. This change affects the supply curve. The supply curve shifts to the right, indicating an increase in the supply of oil. As a result, the equilibrium price decreases, and the quantity demanded increases. This is shown in the diagram below:
Price
|
| S1
|
| S0
|
|________________________
Quantity Demanded
b. After the 1973 war, oil producers cut oil production sharply:
When oil producers cut production, it affects the supply of oil. The supply curve shifts to the left, indicating a decrease in the supply of oil. As a result, the equilibrium price increases, and the quantity demanded decreases. This is shown in the diagram below:
Price
|
| S1
|
| S0
|
|________________________
Quantity Demanded
c. After 1980, smaller automobiles get more miles per gallon:
When smaller automobiles become more fuel-efficient, it affects the demand for oil. The demand curve shifts to the left, indicating a decrease in the demand for oil. As a result, the equilibrium price decreases, and the quantity demanded decreases. This is shown in the diagram below:
Price
|
|
| D1
| D0
|
|________________________
Quantity Demanded
d. A record-breaking cold winter in 1995-1996 unexpectedly raises the demand for heating oil:
When there is an unexpected increase in the demand for heating oil, it affects the demand curve. The demand curve shifts to the right, indicating an increase in the demand for oil. As a result, the equilibrium price increases, and the quantity demanded increases. This is shown in the diagram below:
Price
|
|
| D1
| D0
|
|________________________
Quantity Demanded
e. Rapid economic growth in the early 2000s leads to a sharp upturn in oil prices:
When there is rapid economic growth, it affects the demand curve. The demand curve shifts to the right, indicating an increase in the demand for oil. As a result, the equilibrium price increases, and the quantity demanded increases. This is shown in the diagram below:
Price
|
|
| D1
| D0
|
|________________________
Quantity Demanded
By analyzing the supply and demand curves and their shifts in response to various factors, we can better understand how changes in different variables impact the equilibrium price and the quantity demanded.