While macroeconomics is the study of a national economy it is based on what happens in market. Individual markets are understood by examining supply and demand curves and equilibrium price and quantity. Those darn graphs do not go away.
One the more important markets for a national economy is oil. Oil plays a part in the finding, refining, processing and then as an input into plastics, trucking, air travels among other products and as a complimentary good for autos.
Let’s warm up for economics by looking at the recent changes in this vital market. Read Oil Prices: What’s behind the Drop? Simple Economics New York Times, Feb 3, 2016.
- Draw a demand and supply graph to reflect the developments discussed in “Why has the price of oil been dropping so fast? Why now?”
- Specifically how would a doubling of domestic production be reflected on the graph.
- Is the new equilibrium price an explanation for the dropping oil prices?
- And if in the last years production had doubled why are there now companies going bankrupt with 250,000 workers laid off? Consider our prior discussion of economic profits.
That’s enough for now. Put your answers to the last two questions in the comments. I will post the graph and feedback on your comments next week.
For a review of demand and supply graphs, see Week 2 videos and worksheets