Suppose That an Increase in Oil Prices Causes the Supply

question 58

Essay

Suppose that an increase in oil prices causes the supply curve of gasoline to shift.Using a graph,illustrate the resulting changes in equilibrium price and quantity in both the short run and the long run.

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Definitions:

Marginal Cost

An incremental expense associated with manufacturing one extra item of a product.

Average Fixed Cost

The total fixed costs divided by the number of units produced, representing how fixed costs dilute with increased production.

Marginal Cost

Marginal cost is the increase or decrease in the total cost that arises when the quantity produced is incremented by one unit.

Average Variable Cost

The cost of production that varies with the output level, calculated by dividing the total variable costs by the number of units produced.