Oil Price Shock/Price Discrimination

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• Positive and Adverse Supply Shock

  It reduces the supply of oil in the rest of the world which eventually increases its selling price. Adverse supply is not a welcome sight. It reduces the real value of money. Succeeding supply shock further erodes income.

• Monopoly

  Monopolies can thus increase their revenue by using an appropriate price discrimination strategy. In second degree price discrimination, price varies according to quantity sold. Larger quantities are available at a lower unit price.

• Explain inflation, stagflation, recession, depression

  In the contraction phase, the economy stops growing (hence "stag"), while price may sometimes increase as a result of a supply side shock.

• Economic impact of hurricane Katrina

  Real GDP will definitely fall, but the price level will definitely rise. D. Real GDP may rise or fall, but the price level will definitely fall. 1.

• Economic Shock of Hurricane Katrina

  A significant amount of crude oil, natural gas and gasoline production has been halted by the hurricane. 3. Katrina's disruptive effects indicate still further moderation in aggregate demand growth.

• Changes in the price of a key commodity

  An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil and additionally to electricity or other natural resources.

• Monopoly, Oligopoly, Cartel and OPEC

  In more competitive markets (e.g. oligopolies), however, it is possible that price discrimination could cause all prices to fall. (By contrast, price discrimination might cause all prices to rise, since entry then does not occur.)

• Aggregate Demand & Supply

  b) Price of oil increases => cost of production increases => AS curve shifts up => AD curve will have little changes (because this is a supply side shock) => price goes up because cost of production increases => nominal GDP goes up, but real GDP will

• Supply shocks and price stabilization

  If policymakers wish to prevent the equilibrium price level from changing in response to the oil price increase, should they increase or decrease the quantity of money in circulation? Why?