Problems & Exercises for MACRO

UNIT ONE (FOR EXAM ONE)

Unit One--Assignment Two--Web Problem 6

A

Assume that you own and operate an oil refinery and that the current price of oil is $50 per barrel. In addition, assume that you and other knowledgeable persons in the oil industry expect the price of oil to rise to $55 over the next three to six months. Does this expectation have any influence on your short-run supply decision? Illustrate with a supply and demand graph.

Now assume that the current price is $50 but you expect oil prices to drop to $45 over the next three to six months. Does this expectation have any influence on your short-run supply decision? Illustrate with a supply and demand graph.