Help explain how id do it...?
Assume that oil begins to run out and that extraction becomes more expensive. Trace through the effects of this on market for oil and the market for other fuels.
Answer:
In the market for oil: as oil begins to run out and extraction increases at the margin, given nothing else changes, oil supply goes down, shift the supply curve in to the left. The new eqm is where the old demand curve meets the new supply curve at a lower quantity and higher price. Again it is important to point out nothing else can change for this to be correct. The demand in the oil market DOES NOT CHANGE.
In other markets:
other fuels are substitutes so as the price in the oil market goes up the demand in the other fuel markets increase. Key point, in the other fuel markets supply DOES NOT CHANGE. however, increased demand is a shift outward(right) of the demand curve leads to a new eqm of the new demand curve and old supply curve. this happens at a higher price and higher quantity.
The 2 answers above play very loosely with the terms supply and demand changing. Please be careful, make sure that you only shift the curve that is affected by the event that you are given, in this case extraction costs increase.
When supply decreases, demand increases, raising the price of oil. Demand for alternate fuels increases as the price of fuel increases. In Econ, its always about supply and demand.
Oil prices go up.
As people realized they needed a new fuel, the price of the new fuel would go up.
Supply and Demand.
Low Supply, high demand, prices go up.
High Supply, Low demand, prices go do.
Joe
Definitely, as what the other have explained, and using the Law of Supply and Demand, Less Supply Higher prices for petroleum products. Other fuels will likely increase depending on its supply. If supply is abundant that it can replace the lack of "drilled" oil, then prices will be at reasonable prices.
However, side tracking a bit, in the long run, scientists will find variety alternative fuels. We will learn how to utilize free sources of power, sun, wind and natural gasses. Engines will be run by hydrogen cells, or diesel extracted from agricultural products.
That is how I look at it. Hope I was able to help.
Whatever everyone else said. Supply and demand.
On a dark note, no one guarantees that if the oil runs out we will have a substitute, at least not on time. It looks like we will face a long period of energy shortages before limited alternatives start to kick in.
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Answer:
In the market for oil: as oil begins to run out and extraction increases at the margin, given nothing else changes, oil supply goes down, shift the supply curve in to the left. The new eqm is where the old demand curve meets the new supply curve at a lower quantity and higher price. Again it is important to point out nothing else can change for this to be correct. The demand in the oil market DOES NOT CHANGE.
In other markets:
other fuels are substitutes so as the price in the oil market goes up the demand in the other fuel markets increase. Key point, in the other fuel markets supply DOES NOT CHANGE. however, increased demand is a shift outward(right) of the demand curve leads to a new eqm of the new demand curve and old supply curve. this happens at a higher price and higher quantity.
The 2 answers above play very loosely with the terms supply and demand changing. Please be careful, make sure that you only shift the curve that is affected by the event that you are given, in this case extraction costs increase.
When supply decreases, demand increases, raising the price of oil. Demand for alternate fuels increases as the price of fuel increases. In Econ, its always about supply and demand.
Oil prices go up.
As people realized they needed a new fuel, the price of the new fuel would go up.
Supply and Demand.
Low Supply, high demand, prices go up.
High Supply, Low demand, prices go do.
Joe
Definitely, as what the other have explained, and using the Law of Supply and Demand, Less Supply Higher prices for petroleum products. Other fuels will likely increase depending on its supply. If supply is abundant that it can replace the lack of "drilled" oil, then prices will be at reasonable prices.
However, side tracking a bit, in the long run, scientists will find variety alternative fuels. We will learn how to utilize free sources of power, sun, wind and natural gasses. Engines will be run by hydrogen cells, or diesel extracted from agricultural products.
That is how I look at it. Hope I was able to help.
Whatever everyone else said. Supply and demand.
On a dark note, no one guarantees that if the oil runs out we will have a substitute, at least not on time. It looks like we will face a long period of energy shortages before limited alternatives start to kick in.
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