Answer to Question #323681 in Microeconomics for Gabriella

Question

Suppose the oil wells in Iran, Iraq and Kuwait are set alight, resulting in a dramatic and prolonged decline in the world output of oil. Use demand and supply curves to illustrate how this will affect the equilibrium price and quantity of oil.  

Answer 1

The supply will decrease and the supply curve will shift leftwards, as a result the equilibrium price will increase and the quantity of oil will decrease.