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In 2006, the supply of crude oil in the world decreased due to political uncertainties in oil-exporting countries such as Nigeria and Iraq
In 2006, the supply of crude oil in the world decreased due to political uncertainties in oil-exporting countries such as Nigeria and Iraq. In the same time period, the world demand for crude oil increased, led by economic growth in emerging countries such as China and India.
What would happen to the equilibrium price and quantity of crude oil traded?
a. The price will rise and quantity may not change.
b. The price will rise and the quantity will fall.
c. The price will fall and quantity may not change.
d. The price will fall and quantity will rise.
Expert Solution
Option A
In 2006, when the supply of crude oil in the world decreased, the demand for crude oil increased due to economic growth in emerging countries like China and India. Since the demand for a good is more than the supply, the price of the good would rise and quantity may not change. It is because the demand for goods can be controlled only by increasing prices. Therefore, forces of supply and demand would lead to an increase in the prices of oil without any change in quantity.
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