Question

Suppose you are an analyst in the oil refinery industry and are responsible for estimating the equilibrium price and quantity of home heating oil. To do so, you must consider factors that can affect the supply of and demand for heating oil. Determinants of the demand for heating oil include household income, the price of an oil furnace (a complementary good for heating oil), and the price of natural gas (a substitute good for heating oil). Determinants of the supply of heating oil include the cost of crude oil and the cost of refining crude oil into home heating oil.

Answer 1

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Answer and Explanation:

Equilibrium price refers to the price in the market at which quantity demanded equal to quantity supplied. The price is indicated by the price level where the demand and supply curve intersect. We see that the price in our graph is $40 where demand and supply intersect

Equilibrium quantity is the quantity in the market where the quantity demanded is equal to quantity supplied. This is indicated by the quantity that meets the intersection in the graph. Our equilibrium quantity is therefore 80000 barrels