Scenario 4 A major war in the Middle East reduces the supply of oil worldwide by 30%. This reduction in the supply of oil is represented by a leftward shift in the supply curve. The reduction in the quantity supplied causes prices to increase as oil is now becoming scarce. As prices increase people will adjust their behaviour to use less oil – cycling to work, not driving long distances, or not using their oil powered heating. These adjustments in price and quantity demanded will continue until a new equilibrium point is found at point ‘B’. At this point less oil is sold at a higher price.
P B
P2 P1
A S1 S
D Q2 Q1 Q
Pair work
The price of petrol and diesel fl uctuates regularly due to changes in the demand and supply of oil. 1. Identify two reasons that could cause the market equilibrium price of petrol and diesel to rise if most of the oil imported into Ireland comes from countries in the Middle East.
2. Identify two reasons that could cause the market equilibrium price of petrol and diesel to fall if most of the oil imported into Ireland comes from countries in the Middle East.
