Question

A systematic excess of available fuel oil Worldwide, and the ensuing permanent decrease in its price,...

A systematic excess of available fuel oil Worldwide, and the ensuing permanent decrease in its price, may be depicted as:

A) a shift of the LAS rightward, with no change in the SAS.

B) an unchanged LAS, with the SAS shifting rightward.

C) a shift of the LAS rightward, with the SAS shifting rightward.

D) an unchanged LAS, and an also unchanged SAS.

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Answer #1

Fuel is an important production input and greatly important contributor to overall level of prices. The change in fuel prices clearly affects short run supply curve as sudden change in factor cost change supply side considerations. However, the long run aggregate supply curve depend more on the stock of labor and capital inputs in the economy and is independent of prices. Thus A systematic excess of available fuel oil Worldwide, and the ensuing permanent decrease in its price, may be depicted as: an unchanged LAS, with the SAS shifting rightward.

Thus the correct answer is option (B)

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