Question

From June 2014 to January 2016 the price of crude oil collapsed from $115 to $27 per barrel. The supply and demand model says there are two basic reasons for the price of any item to fall.

A) In two graphs, draw an arbitrary supply and demand curve in each for oil, and then (with arrows and a new shifted curve) show one reason in one graph, and the other reason in the next graph.

B) Another major event that happened over the same period was the collapse of commodity and equity markets. Over the same period the Toronto Stock Market Index (TSX) fell from about 15,000 to 13,000 points. Given this information, which of the above reasons do you think is most likely the cause of the fall in the price of oil?

C) Of the two reason for the price of oil you identified, which one is likely to be correlated with economic growth and which one with economic decline?

D) Over this same period of time, something was happening to a very big economy on the other side of the world. What and how would this fit into the puzzle of falling oil and commodity price.

Answer 1