Question

Suppose a large oil reserve is discovered in South Dakota. Does this affect the AS curve for the long-run, short-run, or both? Explain. Please explain in 200 words.

Answer 1

A new oil reserve discovered in the South Dakota will shift both the short run and long run Supply curve in the economy.

Short run supply curve: A short run supply curve will shift to the right i.e. higher production at a lower cost. This shift will be because of the newly discovered oil supply which will reduce the input cost of the firms allowing them to hire more labor and produce more at a lower cost.

Long run Supply curve: Long run supply curve represents the supply which is depended on the resource, technology, and population of the nation. with new oil reserves, the resources in the nation have increased. It will allow the nation to exploit those resource and shift the long run supply curve to shift to the right i.e. at a higher level of output at all the price level.

The nation will find a new equilibrium at a higher output and a higher price in the long run.