18. Understandingchanges in equilibrium price and quantity Suppose you are an an

Question

18. Understandingchanges in equilibrium price and quantity Suppose you are an analyst in the oil refinery industry and are responsible for estimating the equilibrium price and quantity of home heating oil. To do so, you must consider factors that can affect the supply of and demand for heating oil Determinants of the demand for heating oil include household income, the price of an oil furnace (a complementary good for heating oil), and the price of natural gas (a substitute good for heating oil). Determinants of the supply of heating oil include the cost of crude oil and the cost of refining crude oil into home heating oil Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the calculator. (Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.) Graph Input Tool Market for Heating Oil Market for Heating Oil 80 Price of Heating oil (Dollars per barrel) 30 70 Sup Quantity Demanded Quantity Supplied 100 60 of 60 nds of per day) rrels per day) 50 40 Demand Shifters Supply Shifters 30 Price of Natural Gas (Dollars cubic ft Cost of Crude Oil (Per barrel of heating oil) 20 mand per 1,000 Price of an Oil Furnace (Dollars per furnace) Cost of Refining Oil (Per barrel of heating oil) 2000 0 20 40 60 80 100 120 140 160 Average Annual Income 40 QUANTITY (Thousands of barrels per day) dollars)

Explanation / Answer

a) THe equilbruim quantity is 80 thousands barrels per day and the equilbruim price is $40.

b) $45 barrels per day ( you must fill the new value of cost of refining oil in your table to see the changes in your graph and see the new equilbruim price exactly. it must be around $45 because when cost of refining oil is increase it will lead to shift the supply curve upward and equilbruim price increases )

c) SURPLUS.

d) downward.

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