Answer to Question #278828 in Macroeconomics for thilini

Question

In recent years, the price of oil has fallen drastically. Explain if this is a result of:

a. A drastic reduction in the cost of production (i.e. shift in the supply curve)?

b. A fall in the demand for oil and oil products ( i.e. shift in the demand curve?

c. Other factors ?

(Hint: Search through the material on oil pricing in the global market) (10 marks)

Answer 1

In recent years, the price of oil has fallen drastically. This is a result of a fall in the demand for oil and oil products (i.e. leftward shift in the demand curve) as a result of Covid-19 pandemic and following lockdowns.

So, the correct answer is b.