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

Answer 1

Answer:

Quantity of oil bought & sold would depend upon relative change i.e increase & decrease in demand & supply respectively.

• ↑Dd = ↓Sy : Qty same
• ↑Dd > ↓Sy : Qty ↑
• ↑Dd < ↓Sy : Qty ↓

Explanation:

Libya is an exporter of Oil to China. It implies china's demand for oil is satisfied by Libya's imports.

Usual markets are at equilibrium when market demand = market supply, demand & supply curves intersect.

Political unrest in Libya decreasing oil production, would decrease supply (exported) of oil to China & sift supply curve leftwards. Simultaneously, increase in China demand for oil would shift the demand curve rightwards. These changes in demand, supply would create excess demand. Excess demand would cause competition among buyers & increase the new equilibrium price.

However, Quantity of oil bought & sold would depend upon relative change , shift in demand & supply. If increase in demand is equal to decrease in supply, the quantity would remain same. If increase in demand is more than  decrease in supply, quantity will increase. If increase in demand is less than decrease in supply, the quantity will decrease.