Answer to Question #117258 in Microeconomics for Sidra

Question

Terrorists destroy a major oil pipeline in Iraq (market for oil) What will be the effect on demand and supply equilibrium

Answer 1

A decrease in supply will cause an increase in the equilibrium price and a decrease in the equilibrium quantity of a good. The decrease in supply creates an excess demand at the initial price and excess demand causes the price to rise and quantity demanded to decrease.