Question

In Covid 19 Shutdown, What made OPEC decide to cut the supply of oil? What was the desired outcome of the decision? What was the change in the supply and demand curves of oil and the subsequent market equilibria? Analyze the changes both before and after the decision to reduce supply.

Answer 1

The law of supply and demand primarily affects the oil industry by determining the price of the "black gold." Expectations about the price of oil are the major determining factors in how companies in the industry allocate their resources. Prices create incentives that influence behavior. This behavior eventually feeds back into supply and demand to determine the price of oil.