Question

Businesses across the country are starting to install extra insulation in their buildings and warehouses. Households are now deciding to install more insulation as well. Which of the following outcomes would you predict will happen to the market for oil?a) Equilibrium price and quantity of oil will increase. b) Equilibrium price and quantity of oil will decrease.c) Equilibrium price will decrease and quantity will increase. d) Equilibrium price will increase and quantity will decrease.

Answer 1

Answer:

The answer is: B) Equilibrium price and quantity of oil will decrease.

Explanation:

When a company or a family installs extra insulation in their buildings or homes, then they will end up spending less money on both their electricity and heating bills. That will result in a lower demand for oil, so the price of oil will go down. As oil prices go down, the oil companies will decrease the oil supply until a new equilibrium point is reached.