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# Suppose that more companies receive permission to drill for

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Question 3:
Suppose that more companies receive permission to drill for oil in Alaska and U.S.-controlled waters. In addition, assume that the popularity of SUVs declines in favor of smaller, more fuel efficient automobiles. What will be the result on the market (supply, demand, price, and quantity) for oil in the U.S.? How does this move the supply and demand curve?

In this situation the supply would be so high that it would cause a price war causing the cost of a barrel of oil to drop. Because of the more fuel efficient smaller cars the demand for gas would not be as high causing the prices of oil to drop even further. This would eventually lead to us having a huge supply of oil and a low demand for it.

Question 4:
Explain what factors would increase the supply (shift the supply line to the right) of a manufactured product like white bread and what factors would cause a decrease in demand (shift of the demand curve to the left) for that same product.

Several factors such as natural disasters, man-made disaster, fire, and food shortages in underdeveloped countries would increase the supply of white bread. This is because the bread could be used to make sandwiches to feed everyone. On the other side of the coin over production, bread going stale, getting old and growing mildew on it would lead to a decrease in demand. All of these problems could be seen as a sign on over production by the bakery.

Question 5:
Explain the role of economic theory and answer the question, â??what is an economic model?â?

##### Solution Summary

Suppose that more companies receive permission to drill for oil in Alaska and U.S.-controlled waters. In addition, assume that the popularity of SUVs declines in favor of smaller, more fuel efficient automobiles. What will be the result on the market (supply, demand, price, and quantity) for oil in the U.S.? How does this move the supply and demand curve?

In this situation the supply would be so high that it would cause a price war causing the cost of a barrel of oil to drop. Because of the more fuel efficient smaller cars the demand for gas would not be as high causing the prices of oil to drop even further. This would eventually lead to us having a huge supply of oil and a low demand for it.

Question 4:
Explain what factors would increase the supply (shift the supply line to the right) of a manufactured product like white bread and what factors would cause a decrease in demand (shift of the demand curve to the left) for that same product.

Several factors such as natural disasters, man-made disaster, fire, and food shortages in underdeveloped countries would increase the supply of white bread. This is because the bread could be used to make sandwiches to feed everyone. On the other side of the coin over production, bread going stale, getting old and growing mildew on it would lead to a decrease in demand. All of these problems could be seen as a sign on over production by the bakery.

Question 5:
Explain the role of economic theory and answer the question, â??what is an economic model?â?

##### Solution Preview

#3 - The increase in drilling for oil will create an increase in the oil supply. The price of oil will decrease as it moves the supply curve for oil to the right. Because the popularity of SUV's decreases, the demand for oil will drop, since SUV's use oil, causing the demand curve for oil to go to the left. Both factors together - the increase in supply and the decrease in demand for SUV's ...

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