Question

Shifts in the supply of oil have caused large changes in price since the 1970s because __ a) the supply of oil is very inelastic while the demand for oil is very elastic over short periods of time. b) the supply of oil is very elastic while the demand for oil is inelastic over short periods of time. o_ __ periods of time. c) both the supply of oil and the demand for oil are inelastic over short d) the supply of oil and the demand for oil are perfectly elastic over short periods of time.

Answer 1

Shifts in the supply of oil have caused large changes in price since the 1970s because supply and demand for oil are often inelastic in the short run, but become more elastic in the long run.

Step-by-step explanation:

The reason for large changes in oil prices since the 1970s is that supply and demand for oil are often inelastic in the short run, meaning that shifts in either demand or supply can cause a relatively greater change in prices. However, in the long run, supply and demand become more elastic, resulting in more muted changes in prices and greater adjustments in quantity.

For example, during the 1973 OPEC shock, the demand for oil in the United States was inelastic, leading to a large increase in price. However, if the demand had been more elastic, the price increase would have been smaller and the reduction in quantity larger.

Overall, elasticity of supply and demand plays a significant role in the magnitude of price changes in the oil market.