1. (a)
i. OPEC cut output: supply curve shifts to the left
ii. Diminishing threats to Iran’s oil export: supply curve shifts to the right
(b) Oil price was higher in the summer (August) than the autumn (September): We can know from the article that people needed the most oil in the winter for heating. Therefore, the demand curve wouldn’t really shift before winter arrived
Besides, no price drop would cause an “increase in demand (a shift of demand curve).” It only causes a “movement along the curve.”
The main reason for the equilibrium price to drop and the equilibrium quantity to rise was probably due to the good weather (hurricane can sometimes destroy oil plants at the Gulf of Mexico) and the decrease of threats on Iranian Oil supply(I don’t know when this article was written but I guess it has something to do with the Iraq-Iran War兩伊 in the 1980s(?).) They both contributed to the increase of oil supply.
2.
a. The subsidy makes the supply of ethanol shifts to the rightàthe equilibrium price of ethanol decreases and the quantity increases.
Ethanol-blended oil became cheaper, so the demand of its substitute—oil—drops.
b. More ethanol produced means more corn used in the production of ethanol.
Therefore, the demand for corn increases in the corn market, causing the equilibrium price of corn to rise. When the cost of input rises, the supply of cattle shifts to the left. This means that in equilibrium fewer cattle are supplied at a higher price.
(You may argue that there are some manure-powered ethanol plants that will use more manure from cows, thus bring about forth cattle. But your can see from that article that these plants are definitely disappearing)
3.
a. Just draw a picture showing how demand and supply interacts during summer, fall, and winter.
b. If the supply curve is less elastic, the variation in price will be greater. A shortage in refining and storage capacity means that in the high season where demand can suddenly increase, there might not be enough supply to meet the demand. If there were enough capacity, the equilibrium price would be lower(the change in price would be less volatile).
4.a.
Definition for Comsumer/Producer Surplus(click here)
i. OPEC cut output: supply curve shifts to the left
ii. Diminishing threats to Iran’s oil export: supply curve shifts to the right
(b) Oil price was higher in the summer (August) than the autumn (September): We can know from the article that people needed the most oil in the winter for heating. Therefore, the demand curve wouldn’t really shift before winter arrived
Besides, no price drop would cause an “increase in demand (a shift of demand curve).” It only causes a “movement along the curve.”
The main reason for the equilibrium price to drop and the equilibrium quantity to rise was probably due to the good weather (hurricane can sometimes destroy oil plants at the Gulf of Mexico) and the decrease of threats on Iranian Oil supply(I don’t know when this article was written but I guess it has something to do with the Iraq-Iran War兩伊 in the 1980s(?).) They both contributed to the increase of oil supply.
2.
a. The subsidy makes the supply of ethanol shifts to the rightàthe equilibrium price of ethanol decreases and the quantity increases.
Ethanol-blended oil became cheaper, so the demand of its substitute—oil—drops.
b. More ethanol produced means more corn used in the production of ethanol.
Therefore, the demand for corn increases in the corn market, causing the equilibrium price of corn to rise. When the cost of input rises, the supply of cattle shifts to the left. This means that in equilibrium fewer cattle are supplied at a higher price.
(You may argue that there are some manure-powered ethanol plants that will use more manure from cows, thus bring about forth cattle. But your can see from that article that these plants are definitely disappearing)
3.
a. Just draw a picture showing how demand and supply interacts during summer, fall, and winter.
b. If the supply curve is less elastic, the variation in price will be greater. A shortage in refining and storage capacity means that in the high season where demand can suddenly increase, there might not be enough supply to meet the demand. If there were enough capacity, the equilibrium price would be lower(the change in price would be less volatile).
4.a.
Definition for Comsumer/Producer Surplus(click here) b. The increase in diesel price causes the demand for kerosene to increase. But the decrease in maximum price causes more “deadweight loss” in the kerosene market, and with the increase in demand the loss is even greater. You can draw a picture to demonstrate this.
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