REVIEW QUESTIONS
- Many changes affect the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.
- Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
- The winter is exceptionally cold.
- A major discovery of new oil is made off the coast of Norway.
- The economies of some major oil-using nations, like Japan, slow down.
- A war in the Middle East disrupts oil-pumping schedules.
- Landlords install additional insulation in buildings.
- The price of solar energy falls dramatically.
- Chemical companies invent a new, popular kind of plastic made from oil.
- Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?
- If a price floor benefits producers, why does a price floor reduce social surplus?
- How does one analyze a market where both demand and supply shift?
- Does a price ceiling attempt to make a price higher or lower?
- How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied?
- Does a price floor attempt to make a price higher or lower?
- How does a price floor set above the equilibrium level affect quantity demanded and quantity supplied?
- What is the relationship between total surplus and economic efficiency?
- What is deadweight loss?