Answer to Question #219471 in Microeconomics for kelly

Question

"The Organization of Petroleum Exporting Countries (OPEC) has decided to increase the global oil price."

Identify if the above situation change/shift the aggregate supply or demand curves in the short term, or both.Use AD-AS to illustrate(draw a graph) and explain the impact of situation that change/shift the curve.

Answer 1

Increases in oil prices are typically considered to raise inflation and slow economic development. In terms of inflation, oil prices directly impact the pricing of items manufactured using petroleum products. Increases in oil prices can reduce the supply of other products by raising the expense of production.

Taxes and subsidies, labor (wage) prices, and raw material prices influence and change the short-run curve. Changes in labor and capital quantity and quality also have an impact on the short-run aggregate supply curve.