Question

Suppose that the economy is in long-run equilibrium. If oil prices rise significantly and firms become more pessimistic about future business conditions, then in the short run, we would expect that:

Answer 1

In the short term, we can expect an economic imbalance, with a decrease in the oil supply.

Step-by-step explanation:

In relation to oil, a balanced economy means that the amount of demand for oil is equal to the amount of oil supply. In this case, the price of the oil becomes stabilized and fair in relation to demand and supply. However, if the demand for oil starts to increase disproportionately in relation to the oil supply, it will cause a disproportionate increase in oil prices. In the short term, this generates an economic imbalance and causes the supply of oil to be reduced, in order to avoid the scarcity of the product. The disproportionate increase in price causes consumers to lose interest in the oil, causing the demand for the product to fall.

Demand is consumer demand and supply is the amount of product that a company can provide.