Suppose the Fracking Technology Allows Oil Producers to Extract Oil

question 18

Essay

Suppose the fracking technology allows oil producers to extract oil reserves previously unavailable. Use a diagram to show the effect this discovery would have over the long run price path of oil. What would be the effect this would have over the price of alternative sources of energy such as solar energy?

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Definitions:

Income Elasticity

A measure of how much the demand for a good changes as the income of consumers changes.

Normal Good

A good for which demand increases as the income of consumers increases, showing a positive correlation between income and demand.

Pizza

A popular dish of Italian origin consisting of a round, flattened base of leavened wheat-based dough topped with tomatoes, cheese, and often various other ingredients.

Income Elasticity

An indicator that shows the variation in demand for a product based on changes in the income levels of consumers.