Answer to Question #130209 in Microeconomics for Shahmir Yousaf

Question

In the years between 2008 and 2015 technological advances in shale oil production mean an extra 3 million barrels of oil are produced each month in the US. At the same time OPEC decides to produce an extra 1 million barrels of oil per month. Over the same period advances in engine technology mean that cars worldwide are using less petrol and the Chinese economy slows its growth from 9% a year to 6% a year. In the market for oil, explain what happened to the equilibrium price and quantity.

Answer 1

If demand decreases and supply increases then equilibrium quantity could go up, down, or stay the same, and equilibrium price will go down. If demand decreases and supply decreases then equilibrium quantity goes down, and equilibrium price could go up, down, or stay the same.