I need help on understanding number 4. Consider the table below for the supply a
ID: 1168523 • Letter: I
Question
I need help on understanding number 4.
Consider the table below for the supply and demand for oil in the United States.
Supply and Demand for Oil – U.S.
Price (Y Axis)
$ per barrel
Quantity
Demanded (QD)
Millions of Bls per day
Quantity
Supplied (QS)
Millions of Bls per day
104
22
12
106
21
13
108
20
14
110
19
15
112
18
16
114
17
17
116
16
18
118
15
19
120
14
20
122
13
21
124
12
22
1. On the grid below, create a graph depicting the market for oil using the table above, and plot the QD and the QS. (Use EXCEL to plot the graph on a separate sheet if possible, but not required. Use titles on
the graph, axes, and curves.).
2. Market curves
a. Calculate the slope of the demand curve using data in the table/graph.
b. Calculate the slope of the supply curve using data in the table/graph.
c. What do the slopes of the curves indicate in this market? How does the slope of the demand curve and supply curve relate to the law of demand and the law of supply? Use 3-4 well -written sentences including numerical examples from the data given.
3. If the price of oil is $110 per barrel, is this above or below equilibrium, and is there a surplus or shortage in the market? How much is the surplus or shortage? Explain in one or two sentences using specific numerical calculations.
4. From your graph, explain how a change in the QUANTITY SUPPLIED could occur and give a specific scenario and include numerical examples from the data given.
5. On your graph, draw what would happen if a small INCREASE in the SUPPLY of oil occurred with a larger DECREASE in the DEMAND for oil. Explain the result using 2-3 well-written sentences and include numerical examples from your new graphical outcome including the new equilibrium of price and QD/QS compared to the old one.
Price (Y Axis)
$ per barrel
Quantity
Demanded (QD)
Millions of Bls per day
Quantity
Supplied (QS)
Millions of Bls per day
104
22
12
106
21
13
108
20
14
110
19
15
112
18
16
114
17
17
116
16
18
118
15
19
120
14
20
122
13
21
124
12
22
184 laa lig oQuant clemarded l14 11a l1O 10% o Quanti Supptied 104Explanation / Answer
(4)
Change in quantity supplied will occur if the price of oil changes, and it will be depicted by a movement along the supply curve, upward or downward.
For your graph, let us consider that price has increased from $114 to $120. Then, at higher price, the producers will be encouraged to supply more. From the supply curve we can see that when price is $120, quantity supplied is 20 (increased from previous equilibrium quantity of 17).
Again, if price decreases from $114 to $110, suppliers will be discouraged to produce more output at a lower price. So they will decrease supply, to 15 units.
Here, please note: A change in quantity supplied (or demanded) will take place only if the good's own price changes. This will cause a movement up or down the supply (or demand) curve. But if any other determinants of supply (or demand) other than the good's own price changes (like price of a substitute product, decrease in income, increase in input cost etc), that will be called a change in supply (or demand). This will result in a shift in the supply (or demand) curve, towards right or left.
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