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1 The OPEC Oil Shocks of the 1970s was an example of a negative demand shock in the AD-AS model
1
The OPEC Oil Shocks of the 1970s was an example of a negative demand shock in the AD-AS model. Please answer True, False or Uncertain and provide an short explanation in words. Your mark will be based on evidence used from the course. I.e. definitions, concepts, models and empirical trends.
2
Sammy’s Bakery and Presley’s Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.80. Sammy’s is willing to sell a cupcake for as little as $1.95; Presley’s is willing to sell a cupcake for as little as $2.90. How much is the total producer surplus?
Expert Solution
1
True
Explanation- In 1970s there is a price shock in OPEC oil price in which the price of the oil rosed because the OPEC is a cartel and there is a lack of discipline in the member countries of OPEC.Due to which a price shock occurs in 1970s due to which a negative demand shock in AD- AS occur.
A negative demand shock is a sudden and surprise event that dramatically decreases demand for a particular goods or services, usually for a temporary period. Because there is a price shock in the OPEC that's why the negative demand shock occurred.
2
Total producer surplus = (2.8-1.95)
= $ .85
??????Bcoz only Sammy will sell the cupcake , but Presley will not sell the cupcake ????, as the price at which he is willing to sell , is higher than market price.
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