Question

In 2011 oil production in Libya was interrupted by political unrest. At the same time, the demand for oil by China continued to rise.

Required:
a. Demonstrate the impact on the quantity of oil bought and sold.

Instructions: Draw a parallel shift in the demand or supply curve(s) by grabbing, dragging, and then dropping the curve(s) to the new position(s).

b. Oil production in Libya returned to its original levels by the end of 2012. What was the likely effect on equilibrium oil price and quantity?

Answer 1

Answer:

As a result of the political unrest in Libya, the supply of oil would fall, As a result the supply curve would shift to the left. This would lead to fall in equilibrium quantity and a rise in price.

The increased demand for oil would shift the demand curve to the right. The equilibrium price and quantity would increase

Taking these two effects together, equilibrium price would rise and there would be an indeterminate effect on equilibrium quantity

Please check the attached image for a graph showing these shifts

b. As a result of the change in supply, supply would increase. This would increase equilibrium quantity and equilibrium price would fall. in addition with the increase in demand for oil, equilibrium quantity would rise and there would be an indeterminate effect on equilibrium quantity

Explanation: