Solution manual for microeconomics
d d d d
6th edition by david besanko Ronald br
d d d d d d
aeutigam
Chapter1 d
Analyzing Economic Problems
d d
Solutions to Review Questions
d d d
1. Whatdisdtheddifferencedbetweendmicroeconomicsdanddmacroeconomics?
Microeconomicsdstudiesdthedeconomicdbehaviordofdindividualdeconomicddecisiondmakers,dsuchdasd
adconsumer,dadworker,dadfirm,dordadmanager.d Macroeconomicsdstudiesdhowdandentirednationaldecondo
mydperforms,dexaminingdsuchdtopicsdasdthedaggregatedlevelsdofdincomedanddemployment,dthedlevedlsd
ofdinterestdratesdanddprices,dthedratedofdinflation,danddthednaturedofdbusinessdcycles.
2. Whydisdeconomicsdoftenddescribeddasdthedsciencedofdconstraineddchoice?
Whiledourdwantsdfordgoodsdanddservicesdaredunlimited,dthedresourcesdnecessarydtodproducedthosedgodo
dsdanddservices,dsuchdasdlabor,dmanagerialdtalent,dcapital,danddrawdmaterials,dared“scarce”dbecausedth
eirdsupplydisdlimited.d Thisdscarcitydimpliesdthatdwedaredconstraineddindthedchoicesdwedcandmakedadbou
tdwhichdgoodsdanddservicesdtodproduce.d Thus,deconomicsdisdoftenddescribeddasdthedsciencedofdcdonstr
aineddchoice.
3. Howddoesdthedtooldofdconstraineddoptimizationdhelpddecisiondmakersdmakedchoices?d
Whatdrolesddodthedobjectivedfunctiondanddconstraintsdplaydindadmodeldofdconstraineddod
ptimization?
Constraineddoptimizationdallowsdtheddecisiondmakerdtodselectdthedbestd(optimal)dalternativedwhiledadc
countingdfordanydpossibledlimitationsdordrestrictionsdondthedchoices.d Thedobjectivedfunctiondrepresden
tsdthedrelationshipdtodbedmaximizeddordminimized.d Fordexample,dadfirm’sdprofitdmightdbedthedobjdecti
vedfunctiondanddalldchoicesdwilldbedevaluateddindthedprofitdfunctiondtoddeterminedwhichdyieldsdthdedhig
hestdprofit.d Thedconstraintsdplacedlimitationsdondthedchoicedtheddecisiondmakerdcandselectdandddefine
sdthedsetdofdalternativesdfromdwhichdthedbestdwilldbedchosen.
4. Supposedthedmarketdfordwheatdisdcompetitive,dwithdandupward-
dslopingdsupplydcurve,daddownward-
slopingddemanddcurve,danddandequilibriumdpricedofd$4.00dperdbushel.dWhydwoulddadhid
gherdpriced(e.g.,d$5.00dperdbushel)dnotdbedandequilibriumdprice?dWhydwoulddadlowerdpd
riced(e.g.,d$2.50dperdbushel)dnotdbedandequilibriumdprice?
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d1
,Besankod&dBraeutigamd–dMicroeconomics,d5thdeditiondSolutionsdManual
Ifdthedpricedindthedmarketdwasdabovedthedequilibriumdprice,dconsumersdwoulddbedwillingdtodpurchasded
fewerdunitsdthandsuppliersdwoulddbedwillingdtodsell,dcreatingdandexcessdsupply.d Asdsuppliersdrealizdedt
heydarednotdsellingdthedunitsdtheydhavedmadedavailable,dsellersdwilldbidddowndthedpricedtodenticedmdored
consumersdtodpurchasedtheirdgoodsdordservices.d Byddefinition,dequilibriumdisdadstatedthatdwilldredmain
dunchangeddasdlongdasdexogenousdfactorsdremaindunchanged.d Sincedindthisdcasedsuppliersdwilldlowerd
theirdprice,dthisdhighdpricedcannotdbedandequilibrium.
Whendthedpricedisdbelowdthedequilibriumdprice,dconsumersdwillddemanddmoredunitsdthandsuppliersdhda
vedmadedavailable.d Thisdexcessddemanddwilldenticedconsumersdtodbiddupdthedpricesdtodpurchasedthdedl
imiteddunitsdavailable.d Sincedthedpricedwilldchange,ditdcannotdbedandequilibrium.
5. Whatdisdtheddifferencedbetweendandexogenousdvariabledanddandendogenousdvariabledind
andeconomicdmodel?dWouldditdeverdbedusefuldtodconstructdadmodeldthatdcontaineddonld
ydexogenousdvariablesd(anddnodendogenousdvariables)?
Exogenousdvariablesdaredtakendasdgivendindandeconomicdmodel,di.e.,dtheydareddetermineddbydsomedpdr
ocessdoutsidedthedmodel,dwhiledendogenousdvariablesdareddetermineddwithindthedeconomicdmodeldb
eingdstudied.
Andeconomicdmodeldthatdcontaineddnodendogenousdvariablesdwoulddnotdbedverydinteresting.d Withdn
odendogenousdvariables,dnothingdwoulddbeddetermineddbydthedmodeldsoditdwoulddnotdservedmuchdpdur
pose.
6. Whyddodeconomistsddodcomparativedstaticsdanalysis?dWhatdroleddodendogenousdvariad
blesdanddexogenousdvariablesdplaydindcomparativedstaticsdanalysis?
Comparativedstaticsdanalysesdaredperformeddtoddeterminedhowdthedlevelsdofdendogenousdvariablesdcdh
angedasdsomedexogenousdvariabledisdchanged.d Thisdtypedofdanalysisdisdverydimportantdsincedindthedre
aldworlddthedexogenousdvariables,dsuchdasdweather,dpolicydtools,detc.daredalwaysdchangingdandditdidsdu
sefuldtodknowdhowdchangesdindthesedvariablesdaffectdthedlevelsdofdother,dendogenous,dvariables.dAnd
exampledofdcomparativedstaticsdanalysisdwoulddbedaskingdthedquestion:dIfdextraordinarilydlowdradinfal
ld(andexogenousdvariable)dcausesdad30dpercentdreductiondindcorndsupply,dbydhowdmuchdwilldthedmark
etdpricedfordcornd(andendogenousdvariable)dincrease?
7. Whatdisdtheddifferencedbetweendpositivedanddnormativedanalysis?dWhichdofdthedfollowd
ingdquestionsdwoulddentaildpositivedanalysis,danddwhichdnormativedanalysis?
a) WhatdeffectdwilldInternetdauctiondcompaniesdhavedondthedprofitsdofdlocaldautomobileddd
ealerships?
b) ShoulddthedgovernmentdimposedspecialdtaxesdondsalesdofdmerchandisedmadedoverdthedId
nternet?
Positivedanalysisdattemptsdtodexplaindhowdandeconomicdsystemdworksdordtodpredictdhowditdwilldchandg
edoverdtimedbydaskingdexplanatorydordpredictivedquestions.d Normativedanalysisdfocusesdondwhatdsdho
ulddbeddonedbydaskingdprescriptivedquestions.
a) Becausedthisdquestiondasksdwhetherddealershipdprofitsdwilldgodupdorddownd(anddbdy
dhowdmuch)d–
butdrefrainsdfromdinquiringdasdtodwhetherdthisdwoulddbedadgooddthingd–
ditdisdandexampledofdpositivedanalysis.
b) Ondthedotherdhand,dthisdquestiondasksdwhetherditdisddesirabledtodimposedtaxesdondIdn
ternetdsales,dsoditdisdnormativedanalysis.d Notably,dthisdquestionddoesdnotdaskdwhdatd
thedeffectdofdsuchdtaxesdwoulddbe.
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d2
,Solutions to Problems
d d
1.1
Discussdthedfollowingdstatement:d“Sincedsupplydandddemanddcurvesdaredalwaysdshifting,dmard
ketsdneverdactuallydreachdandequilibrium.dTherefore,dthedconceptdofdequilibriumdisduseless.”
Whiledthedclaimdthatdmarketsdneverdreachdandequilibriumdisdprobablyddebatable,devendifdmarketsddodn
otdeverdreachdequilibrium,dthedconceptdisdstilldofdcentraldimportance.d Thedconceptdofdequilibriumdidsdi
mportantdbecauseditdprovidesdadsimpledwaydtodpredictdhowdmarketdpricesdanddquantitiesdwilldchandged
asdexogenousdvariablesdchange.d Thus,dwhiledwedmaydneverdreachdadparticulardequilibriumdprice,dsayd
becausedadsupplydorddemanddscheduledshiftsdasdthedmarketdmovesdtowarddequilibrium,dwedcandpredi
ctdwithdrelativedease,dfordexample,dwhetherdpricesdwilldbedrisingdordfallingdwhendexogenousdmdarketdf
actorsdchangedasdwedmovedtowarddequilibrium.d Asdexogenousdvariablesdcontinuedtodchange,dwedcand
continuedtodpredictdtheddirectiondofdchangedfordthedendogenousdvariables,danddthisdisdnotd“udseless.”
1.2dIndandarticledentitled,d“CorndPricesdSurgedondExportdDemand,dCropdData,”dThedWalldStred
etdJournaldidentifieddseveraldexogenousdshocksdthatdpusheddU.S.dcorndpricesdsharplydhigher.(d
SeedthedarticledbydAarondLucchetti,dAugustd22,d1997,dp.dC17.dondnationaldincome.)dSupposedthedU.S.dmarketdfd
ordcorndisdcompetitive,dwithdandupward-
slopingdsupplydcurvedanddaddownwardslopingddemanddcurve.dFordeachdofdthedfollowingdscend
arios,dillustratedgraphicallydhowdthedexogenousdeventddescribeddwilldcontributedtodadhigherdprdi
cedofdcorndindthedU.S.dmarket.da)dThedU.S.dDepartmentdofdAgriculturedannouncesdthatdexportds
dofdcorndtodTaiwandand
Japandwered“surprisinglydbullish,”daroundd30dpercentdhigherdthandhaddbeendexpected.
b) SomedanalystsdprojectdthatdthedsizedofdthedU.S.dcorndcropdwilldhitdadsix-
dyeardlowdbecausedofddrydweather.
c) ThedstrengtheningdofdEldNiño,dthedmeteorologicaldtrenddthatdbringsdwarmerdweathd
erdtodthedwesterndcoastdofdSouthdAmerica,dreducesdcorndproductiondoutsidedthedUniteddStad
tes,dtherebydincreasingdforeigndcountries’ddependencedondthedU.S.dcorndcrop.
a) Surprisinglydhighdexportdsalesdmeandthatdtheddemanddfordcorndwasdhigherdthandexpedc
ted,datdD2d ratherdthandD1.
P
S
P2
P1
D2
D1
Q
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d3
, Besankod&dBraeutigamd–dMicroeconomics,d5thdeditiondSolutionsdManual
b) Drydweatherdwoulddreducedthedsupplydofdcorn,dtodS2d ratherdthandS1.
S2
P
S1
P2
P1
D
Q
c) AssumingdthedU.S.ddoesdnotdimportdcorn,dreduceddproductiondoutsidedthedU.S.dwou
lddnotdimpactdU.S.dcorndmarketdsupply.d EldNinodwould,dhowever,dcauseddemandddford
U.S.dcorndtodshiftdout,dthedfiguredbeingdthedsamedasdindpartd(a)dabove.
1.3
Indearlyd2008,dthedpricedofdoildondthedworlddmarketdincreased,dhittingdadpeakdofdaboutd$140dped
rdbarreldindJuly,d2008.dIndthedseconddhalfdofd2008,dthedpricedofdoilddeclined,dendingdthedyeardatdj
ustdoverd$40dperdbarrel.dSupposedthatdthedglobaldmarketdfordoildcandbeddescribeddbydandupwda
rd-slopingdsupplydcurvedanddaddownward-
slopingddemanddcurve.dFordeachdofdthedfollowingdscenarios,dillustratedgraphicallydhowdthedexd
ogenousdeventdcontributeddtodadrisedordaddeclinedindthedpricedofdoildind2008:
a. AdboomingdeconomydindChinadraiseddthedglobalddemanddfordoildtodrecorddlevelsdind200d
8.
b. Asdadresultdofdthedfinancialdcrisisdofd2008,dthedU.S.danddotherddevelopeddeconomiesdplud
ngeddintodadseveredrecessiondindthedlatterdhalfdofd2008.
c. ReduceddsectariandviolencedindIraqdind2008denableddIraqdtodincreaseditsdoildproductiod
ndcapacity.
a. BoomingdeconomydindChinadshiftsdtheddemanddcurvedfordoildrightwardd(fromdD0dtod
D1d below),dcontributingdtodandincreasedindthedpricedofdoil.
b. RecessiondindthedU.S.danddotherddevelopeddeconomiesdshiftsdtheddemanddcurvedfordodi
ldleftwardd(fromdD0d todD1d below),dcontributingdtodaddecreasedindthedpricedofdoil.
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d4
d d d d
6th edition by david besanko Ronald br
d d d d d d
aeutigam
Chapter1 d
Analyzing Economic Problems
d d
Solutions to Review Questions
d d d
1. Whatdisdtheddifferencedbetweendmicroeconomicsdanddmacroeconomics?
Microeconomicsdstudiesdthedeconomicdbehaviordofdindividualdeconomicddecisiondmakers,dsuchdasd
adconsumer,dadworker,dadfirm,dordadmanager.d Macroeconomicsdstudiesdhowdandentirednationaldecondo
mydperforms,dexaminingdsuchdtopicsdasdthedaggregatedlevelsdofdincomedanddemployment,dthedlevedlsd
ofdinterestdratesdanddprices,dthedratedofdinflation,danddthednaturedofdbusinessdcycles.
2. Whydisdeconomicsdoftenddescribeddasdthedsciencedofdconstraineddchoice?
Whiledourdwantsdfordgoodsdanddservicesdaredunlimited,dthedresourcesdnecessarydtodproducedthosedgodo
dsdanddservices,dsuchdasdlabor,dmanagerialdtalent,dcapital,danddrawdmaterials,dared“scarce”dbecausedth
eirdsupplydisdlimited.d Thisdscarcitydimpliesdthatdwedaredconstraineddindthedchoicesdwedcandmakedadbou
tdwhichdgoodsdanddservicesdtodproduce.d Thus,deconomicsdisdoftenddescribeddasdthedsciencedofdcdonstr
aineddchoice.
3. Howddoesdthedtooldofdconstraineddoptimizationdhelpddecisiondmakersdmakedchoices?d
Whatdrolesddodthedobjectivedfunctiondanddconstraintsdplaydindadmodeldofdconstraineddod
ptimization?
Constraineddoptimizationdallowsdtheddecisiondmakerdtodselectdthedbestd(optimal)dalternativedwhiledadc
countingdfordanydpossibledlimitationsdordrestrictionsdondthedchoices.d Thedobjectivedfunctiondrepresden
tsdthedrelationshipdtodbedmaximizeddordminimized.d Fordexample,dadfirm’sdprofitdmightdbedthedobjdecti
vedfunctiondanddalldchoicesdwilldbedevaluateddindthedprofitdfunctiondtoddeterminedwhichdyieldsdthdedhig
hestdprofit.d Thedconstraintsdplacedlimitationsdondthedchoicedtheddecisiondmakerdcandselectdandddefine
sdthedsetdofdalternativesdfromdwhichdthedbestdwilldbedchosen.
4. Supposedthedmarketdfordwheatdisdcompetitive,dwithdandupward-
dslopingdsupplydcurve,daddownward-
slopingddemanddcurve,danddandequilibriumdpricedofd$4.00dperdbushel.dWhydwoulddadhid
gherdpriced(e.g.,d$5.00dperdbushel)dnotdbedandequilibriumdprice?dWhydwoulddadlowerdpd
riced(e.g.,d$2.50dperdbushel)dnotdbedandequilibriumdprice?
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d1
,Besankod&dBraeutigamd–dMicroeconomics,d5thdeditiondSolutionsdManual
Ifdthedpricedindthedmarketdwasdabovedthedequilibriumdprice,dconsumersdwoulddbedwillingdtodpurchasded
fewerdunitsdthandsuppliersdwoulddbedwillingdtodsell,dcreatingdandexcessdsupply.d Asdsuppliersdrealizdedt
heydarednotdsellingdthedunitsdtheydhavedmadedavailable,dsellersdwilldbidddowndthedpricedtodenticedmdored
consumersdtodpurchasedtheirdgoodsdordservices.d Byddefinition,dequilibriumdisdadstatedthatdwilldredmain
dunchangeddasdlongdasdexogenousdfactorsdremaindunchanged.d Sincedindthisdcasedsuppliersdwilldlowerd
theirdprice,dthisdhighdpricedcannotdbedandequilibrium.
Whendthedpricedisdbelowdthedequilibriumdprice,dconsumersdwillddemanddmoredunitsdthandsuppliersdhda
vedmadedavailable.d Thisdexcessddemanddwilldenticedconsumersdtodbiddupdthedpricesdtodpurchasedthdedl
imiteddunitsdavailable.d Sincedthedpricedwilldchange,ditdcannotdbedandequilibrium.
5. Whatdisdtheddifferencedbetweendandexogenousdvariabledanddandendogenousdvariabledind
andeconomicdmodel?dWouldditdeverdbedusefuldtodconstructdadmodeldthatdcontaineddonld
ydexogenousdvariablesd(anddnodendogenousdvariables)?
Exogenousdvariablesdaredtakendasdgivendindandeconomicdmodel,di.e.,dtheydareddetermineddbydsomedpdr
ocessdoutsidedthedmodel,dwhiledendogenousdvariablesdareddetermineddwithindthedeconomicdmodeldb
eingdstudied.
Andeconomicdmodeldthatdcontaineddnodendogenousdvariablesdwoulddnotdbedverydinteresting.d Withdn
odendogenousdvariables,dnothingdwoulddbeddetermineddbydthedmodeldsoditdwoulddnotdservedmuchdpdur
pose.
6. Whyddodeconomistsddodcomparativedstaticsdanalysis?dWhatdroleddodendogenousdvariad
blesdanddexogenousdvariablesdplaydindcomparativedstaticsdanalysis?
Comparativedstaticsdanalysesdaredperformeddtoddeterminedhowdthedlevelsdofdendogenousdvariablesdcdh
angedasdsomedexogenousdvariabledisdchanged.d Thisdtypedofdanalysisdisdverydimportantdsincedindthedre
aldworlddthedexogenousdvariables,dsuchdasdweather,dpolicydtools,detc.daredalwaysdchangingdandditdidsdu
sefuldtodknowdhowdchangesdindthesedvariablesdaffectdthedlevelsdofdother,dendogenous,dvariables.dAnd
exampledofdcomparativedstaticsdanalysisdwoulddbedaskingdthedquestion:dIfdextraordinarilydlowdradinfal
ld(andexogenousdvariable)dcausesdad30dpercentdreductiondindcorndsupply,dbydhowdmuchdwilldthedmark
etdpricedfordcornd(andendogenousdvariable)dincrease?
7. Whatdisdtheddifferencedbetweendpositivedanddnormativedanalysis?dWhichdofdthedfollowd
ingdquestionsdwoulddentaildpositivedanalysis,danddwhichdnormativedanalysis?
a) WhatdeffectdwilldInternetdauctiondcompaniesdhavedondthedprofitsdofdlocaldautomobileddd
ealerships?
b) ShoulddthedgovernmentdimposedspecialdtaxesdondsalesdofdmerchandisedmadedoverdthedId
nternet?
Positivedanalysisdattemptsdtodexplaindhowdandeconomicdsystemdworksdordtodpredictdhowditdwilldchandg
edoverdtimedbydaskingdexplanatorydordpredictivedquestions.d Normativedanalysisdfocusesdondwhatdsdho
ulddbeddonedbydaskingdprescriptivedquestions.
a) Becausedthisdquestiondasksdwhetherddealershipdprofitsdwilldgodupdorddownd(anddbdy
dhowdmuch)d–
butdrefrainsdfromdinquiringdasdtodwhetherdthisdwoulddbedadgooddthingd–
ditdisdandexampledofdpositivedanalysis.
b) Ondthedotherdhand,dthisdquestiondasksdwhetherditdisddesirabledtodimposedtaxesdondIdn
ternetdsales,dsoditdisdnormativedanalysis.d Notably,dthisdquestionddoesdnotdaskdwhdatd
thedeffectdofdsuchdtaxesdwoulddbe.
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d2
,Solutions to Problems
d d
1.1
Discussdthedfollowingdstatement:d“Sincedsupplydandddemanddcurvesdaredalwaysdshifting,dmard
ketsdneverdactuallydreachdandequilibrium.dTherefore,dthedconceptdofdequilibriumdisduseless.”
Whiledthedclaimdthatdmarketsdneverdreachdandequilibriumdisdprobablyddebatable,devendifdmarketsddodn
otdeverdreachdequilibrium,dthedconceptdisdstilldofdcentraldimportance.d Thedconceptdofdequilibriumdidsdi
mportantdbecauseditdprovidesdadsimpledwaydtodpredictdhowdmarketdpricesdanddquantitiesdwilldchandged
asdexogenousdvariablesdchange.d Thus,dwhiledwedmaydneverdreachdadparticulardequilibriumdprice,dsayd
becausedadsupplydorddemanddscheduledshiftsdasdthedmarketdmovesdtowarddequilibrium,dwedcandpredi
ctdwithdrelativedease,dfordexample,dwhetherdpricesdwilldbedrisingdordfallingdwhendexogenousdmdarketdf
actorsdchangedasdwedmovedtowarddequilibrium.d Asdexogenousdvariablesdcontinuedtodchange,dwedcand
continuedtodpredictdtheddirectiondofdchangedfordthedendogenousdvariables,danddthisdisdnotd“udseless.”
1.2dIndandarticledentitled,d“CorndPricesdSurgedondExportdDemand,dCropdData,”dThedWalldStred
etdJournaldidentifieddseveraldexogenousdshocksdthatdpusheddU.S.dcorndpricesdsharplydhigher.(d
SeedthedarticledbydAarondLucchetti,dAugustd22,d1997,dp.dC17.dondnationaldincome.)dSupposedthedU.S.dmarketdfd
ordcorndisdcompetitive,dwithdandupward-
slopingdsupplydcurvedanddaddownwardslopingddemanddcurve.dFordeachdofdthedfollowingdscend
arios,dillustratedgraphicallydhowdthedexogenousdeventddescribeddwilldcontributedtodadhigherdprdi
cedofdcorndindthedU.S.dmarket.da)dThedU.S.dDepartmentdofdAgriculturedannouncesdthatdexportds
dofdcorndtodTaiwandand
Japandwered“surprisinglydbullish,”daroundd30dpercentdhigherdthandhaddbeendexpected.
b) SomedanalystsdprojectdthatdthedsizedofdthedU.S.dcorndcropdwilldhitdadsix-
dyeardlowdbecausedofddrydweather.
c) ThedstrengtheningdofdEldNiño,dthedmeteorologicaldtrenddthatdbringsdwarmerdweathd
erdtodthedwesterndcoastdofdSouthdAmerica,dreducesdcorndproductiondoutsidedthedUniteddStad
tes,dtherebydincreasingdforeigndcountries’ddependencedondthedU.S.dcorndcrop.
a) Surprisinglydhighdexportdsalesdmeandthatdtheddemanddfordcorndwasdhigherdthandexpedc
ted,datdD2d ratherdthandD1.
P
S
P2
P1
D2
D1
Q
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d3
, Besankod&dBraeutigamd–dMicroeconomics,d5thdeditiondSolutionsdManual
b) Drydweatherdwoulddreducedthedsupplydofdcorn,dtodS2d ratherdthandS1.
S2
P
S1
P2
P1
D
Q
c) AssumingdthedU.S.ddoesdnotdimportdcorn,dreduceddproductiondoutsidedthedU.S.dwou
lddnotdimpactdU.S.dcorndmarketdsupply.d EldNinodwould,dhowever,dcauseddemandddford
U.S.dcorndtodshiftdout,dthedfiguredbeingdthedsamedasdindpartd(a)dabove.
1.3
Indearlyd2008,dthedpricedofdoildondthedworlddmarketdincreased,dhittingdadpeakdofdaboutd$140dped
rdbarreldindJuly,d2008.dIndthedseconddhalfdofd2008,dthedpricedofdoilddeclined,dendingdthedyeardatdj
ustdoverd$40dperdbarrel.dSupposedthatdthedglobaldmarketdfordoildcandbeddescribeddbydandupwda
rd-slopingdsupplydcurvedanddaddownward-
slopingddemanddcurve.dFordeachdofdthedfollowingdscenarios,dillustratedgraphicallydhowdthedexd
ogenousdeventdcontributeddtodadrisedordaddeclinedindthedpricedofdoildind2008:
a. AdboomingdeconomydindChinadraiseddthedglobalddemanddfordoildtodrecorddlevelsdind200d
8.
b. Asdadresultdofdthedfinancialdcrisisdofd2008,dthedU.S.danddotherddevelopeddeconomiesdplud
ngeddintodadseveredrecessiondindthedlatterdhalfdofd2008.
c. ReduceddsectariandviolencedindIraqdind2008denableddIraqdtodincreaseditsdoildproductiod
ndcapacity.
a. BoomingdeconomydindChinadshiftsdtheddemanddcurvedfordoildrightwardd(fromdD0dtod
D1d below),dcontributingdtodandincreasedindthedpricedofdoil.
b. RecessiondindthedU.S.danddotherddevelopeddeconomiesdshiftsdtheddemanddcurvedfordodi
ldleftwardd(fromdD0d todD1d below),dcontributingdtodaddecreasedindthedpricedofdoil.
Copyrightd©d2014dJohndWileyd&dSons,dInc.d Chapterd1d-d4
