Question

An increase in demand for oil and an increase in supply of oil will:

Select one:

a. increase price and decrease quantity.

b. decrease price and increase quantity.

c. increase price, but whether it increases quantity depends on how much each curve shifts.

d. increase quantity, but whether it increases price depends on how much each curve shifts.

Answer 1

Ans. d. increase quantity, but whether it increases price depends upon how much each curve shifts.

1) when the increase in demand is greater than the increase in the supply of oil - equilibrium price and equilibrium quantity of oil will increase.

2) when the increase in supply is greater than the increase in demand - the equilibrium price will decrease and the equilibrium quantity of oil will increase.

3) when demand and supply increase with the same magnitude - the equilibrium price will remain the same and the equilibrium quantity of oil will increase.