Problem 6: Determinants of Supply and Demand In 2018 the price of oil fell to a 14-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell significantly because jet fuel is a major expense. a) Draw a supply and demand diagram that illustrates the effect of a fall in the price of jet fuel on the supply of air travel. b) Draw a supply and demand diagram that illustrates the effect of a fall in the price of oil on the demand for air travel. (Hint: think about this in terms of the substitutes for air travel, like driving, which has now become relatively cheaper than air travel.) c) Put the diagrams from parts a and b together. What happens to the equilibrium price and quantity of air travel?

Problem 6: Determinants of Supply and Demand In 2018 the price of oil fell to a 14-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged. For the airline industry, the cost of operation also fell significantly because jet fuel is a major expense. a) Draw a supply and demand diagram that illustrates the effect of a fall in the price of jet fuel on the supply of air travel. b) Draw a supply and demand diagram that illustrates the effect of a fall in the price of oil on the demand for air travel. (Hint: think about this in terms of the substitutes for air travel, like driving, which has now become relatively cheaper than air travel.) c) Put the diagrams from parts a and b together. What happens to the equilibrium price and quantity of air travel?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter4: The Market Forces Of Supply And Demand

Section: Chapter Questions

Problem 3PA: Consider the market for minivans. For each of the events listed here, identify which of the...

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Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans. a. People decide to have more children. b. A strike by steelworkers raises steel prices. c. Engineers develop new automated machinery for the production of minivans. d. The price of sports utility vehicles rises. e. A stock market crash lowers peoples wealth.
What happens to the price and the quantity bought and sold in the cocoa market if counties producing cocoa experience a drought and a new study is released demonstrating the health benefits of cocoa? Illustrate your answer with a demand and supply graph.
Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary. Cars are becoming more fuel efficient, and therefore get more miles to the gallon. The winter is exceptionally cold. A major discovery of new oil is made off the coast of Norway. The economies of some major oil-using nations, like Japan, slow down. A war in the Middle East disrupts oil-pumping schedules. Landlords install additional insulation in buildings. The price of solar energy falls dramatically. Chemical companies invent a new, popular kind of plastic made from oil.
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