Question

What is the impact on the New England heating oil market when the weathermen forecast “El Nino” (warm wet winter)? Be sure to use the 4 step process.   List any determinants that change. Be sure to label all curves, points, etc.

The 4 step process just some steps to draw the graph. you can ignore it. thank you

Answer 1

When an El Nino is predicted, consumer preference shifts unfavorably and against heating oil since hot weather will require less heating, therefore demand for heating oil will fall. This will shift the demand curve leftward, lowering both equilibrium price and quantity.

In following graph, Price (P) and quantity (Q) are measured vertically and horizontally respectively. D0 & S0 are initial demand & supply curves, intersecting at point A with initial price P0 and quantity Q0. When demand falls, D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.