If the price of oil falls below $50 per barrel, then the supply of the goods and services whose poduction involves a lot of oil will increase. The incresase in supply will cause the prices for these goods and services to fall. True, False or Uncertain. Explain
take a shot, draw supply and demand curves.
To determine whether the statement is true, false, or uncertain, we need to analyze the relationship between the price of oil and the supply of goods and services that heavily rely on oil in their production.
When the price of oil falls below $50 per barrel, it generally becomes less expensive for firms to obtain the necessary oil inputs for their production processes. As a result, firms that produce goods and services using a significant amount of oil may find it more affordable to increase their production levels. This implies that the supply of these goods and services could potentially increase.
Now, to analyze the impact of an increase in supply on prices, we can refer to the basic principles of supply and demand. When there is an increase in supply, assuming that demand remains constant, we generally expect prices to decrease.
If we were to represent this scenario on a supply and demand graph, we would place the quantity of goods and services on the X-axis and the price on the Y-axis. The supply curve would shift to the right due to the increase in supply caused by the lower oil prices. This would result in a new equilibrium point with a higher quantity of goods and services being supplied and a potentially lower price.
Therefore, based on the understanding of supply and demand, the statement is true. If the price of oil falls below $50 per barrel, there is a higher likelihood that the supply of goods and services which depend on oil in their production will increase, which in turn can cause their prices to fall.