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27. If an unexpected winter storm strikes (thereby increasing the demand for home heating oil) at...

27. If an unexpected winter storm strikes (thereby increasing the demand for home heating oil) at the same time as crude oil prices decline, then we predict:

a. The equilibrium price of home heating oil will increase and the equilibrium quantity will decrease.

b. The equilibrium price of home heating oil will increase and the equilibrium quantity will increase.

c. The equilibrium price of home heating oil will decrease and the equilibrium quantity will increase.

d. The equilibrium price of home heating oil will decrease and the equilibrium quantity will decrease.

e. None of the above.

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Answer #1

In the given scenario the the unexpected wind storm will increase the demand for the heating oil and this is a rightward shift of the demand curve. The crude oil is an important input for making home heat oil so a decline in the price of crude oil makes it more cheaper for to produce the home heating oil. The decline in the price of crude oil increases the supply of home heating oil and this is a rightward shift of the supply curve will shift rightward. These simultaneous shifts will increase the quantity for sure and the effect on the price is indeterminate. The effect on the price depends upon the magnitude of these shifts

Ans: b. The equilibrium price of home heating oil will increase and the equilibrium quantity will increase.

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