Question

34. Consider the following events (i) through (X). Decipher how each event will influence the world demand and supply of oil (shin len, shin right, or no shift) and resulting impact on the price of oil (up or down). Provide a brief (one sentence) reason why - i.e. what determinants of supply or demand are changing to cause the resultant effect? If the answer is not clear, say so. (5 pts each) (Tip: A demand and supply diagram for the oil market as it is the easiest way to track price changes when the curves shift.) EVENT: DEMAND FOR OIL SUPPLY OF OIL PRICE OF OIL SHIFTS: SHIFTS: MOVES: į. Brazil discovers massive oil Same Upwards Upwards reserves off its coast Reasoning ii. New electric-powered cars are a hit with US consumers Reasoning: Same Same Same iti. Global recession reduces consumer incomes worldwide Reasoning: Same Downwards Downwards iv. Coal miners go on strike in Europe, many coal mines shut down Reasoning: Same Upwards Upwards v. More efficient oil drilling equipment is introduced Reasoning

Please fill in graph

Answer 1

34.

Event	Demand for Oil	Supply of Oil	Price of Oil
(i) Brazil Discovers massive oil reserves off its coast	Same	Upwards	Downwards
(ii) New electric powered cars are a hit with US consumers	Downwards	Same	Downwards
(iii) Global recession reduces consumers incomes worldwide	Downwards	Same	Downwards
(iv) Coal miners go on strike in Europe, many coal mines shut down.	Same	Same	Same
(v) More efficient oil drilling equipment is introduced	Same	Upwards	Downwards
(vi) Libya builds solar panels and exports to Europe.	Downwards	Same	Downwards
(vii) US oil companies agrees to give workers wage increases.	Downwards	Same	Increases
(viii) Nuclear reactors are built to meet energy needs.	Downwards	Same	Downwards
(ix) War breaks out in Persian Gulf.	Same	Downwards	Upwards
(x) Nasty hurricane destroys natural gas platforms (but not oil).	Upwards	Same	Upwards

Reasoning for the stated points above:

(i) Brazil Discovers massive oil reserves off its coast - The demand is not getting affected but with the new discovery, the supply of oil increases. This leads the price to decrease.

(ii) New electric powered cars are a hit with US consumers - With the new electric cars, consumers would substitute more of electric cars instead of cars running on oil, so the demand for oil would decrease and with the supply remaining the same, the price of oil would decrease.

(iii) Global recession reduces consumers incomes worldwide - When consumer income reduces, consumers would demand less of everything brought by him so the demand would decrease and with the supply remaining the same, the price of oil would decrease.

(iv) Coal miners go on strike in Europe, many coal mines shut down. - Since coal has no relation with oil, the demand, supply and the price of oil would remain unaffected.

(v) More efficient oil drilling equipment is introduced - With better technology, the supply of oil would increase but the demand would remain the same, so the price of oil would decrease.

(vi) Libya builds solar panels and exports to Europe. - With introduction of solar panels, energy consumed from oil would decrease and energy consumed from solar power would increase. So, the demand would decrease and with the supply remaining the same, the price of oil would decrease.

(vii) US oil companies agrees to give workers wage increases. - When the wage increases, the price of oil also increases which leads to decrease in the demand for oil but the supply of oil would remain the same.

(viii) Nuclear reactors are built to meet energy needs. - With introduction of nuclear reactors, energy consumed from oil would decrease and energy consumed from nuclear reactors would increase. So, the demand would decrease and with the supply remaining the same, the price of oil would decrease.

(ix) War breaks out in Persian Gulf. - When war breaks out in the Persian gulf in the oil supplying countries, the supply of oil would decrease and with the demand remaining the same, the price of oil would increase.

(x) Nasty hurricane destroys natural gas platforms (but not oil). - Since oil is not getting affected, the supply of oil would remain the same, but with the less supply of natural gas, the demand for oil would increase which would lead the price to increase.