Question

82. During 2004 China increased its use of global oil by 40%. This followed a 100% increase during the previous 5 years. How do economists refer to this kind of economic event?

A. Demand shock
B. Equilibrium event
C. Expanding commodity event
D. Supply shock

Answer 1

A sudden and significant increase in China's oil usage can be referred to as a 'demand shock,' a term used by economists. To analyze such events, supply and demand curves are drawn, affected curves are shifted, and a new equilibrium is determined.

Option 'A' is the correct.

Step-by-step explanation:

During 2004, China increased its use of global oil by 40%, following a 100% increase during the previous 5 years. Economists refer to such an economic event as a demand shock.

A demand shock occurs when there's a sudden and unexpected change in the demand for goods or services.

This change could lead to a disruption in the market's equilibrium due to a sharp increase or decrease in demand. For example, the introduction of fuel-efficient cars, an exceptionally cold winter, or geopolitical events affecting oil production can all lead to demand shocks in the market for oil.

To understand how these events affect the equilibrium price and quantity in the market for oil, economists use the following steps:

1. Draw the initial supply and demand curves and label the equilibrium price and quantity.
2. Determine if the economic event affects supply or demand.
3. Shift the affected curve (demand or supply) rightwards for an increase or leftwards for a decrease.
4. Analyze the new equilibrium state.

For instance, an increase in fuel efficiency in cars would lead to a leftward shift in the demand curve, lowering both the equilibrium price and quantity of oil. A cold winter would increase the demand for heating fuel, shifting the demand curve rightward, increasing price and quantity.

A major oil discovery would shift the supply curve rightwards, lowering the price but increasing the quantity of oil available. And if the economy of a major oil-consuming nation slows down, it would result in a leftward shift in the demand curve.

Navigating the complexities of these market changes requires an analysis of supply and demand curves for accurate predictions on equilibrium prices and quantities, isolating each change and assessing its individual impact.