Question

Suppose OPEC oil cartel announces that it will increase production of oil. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the:

Answer 1

The first step is to show where the supply curve will shift, and in this case, the supply curve will shift to the right.

This is because OPEC has decided to increase oil production, or in other words, it has decided to shift the oil supply to the right. After this, the equilibrium price will probably fall, unless demand also rises proportionally.