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Stuck on question... watch

    • Thread Starter

    Don't have any notes on this as I wasn't in the lesson when they were issued out, I've got a few points but really need some help on the following:

    What effect would a decrease in the costs of oil productions have on the supply of oil? (4)

    What other factors could affect the supply of oil? (8)

    Thank you so much!

    1) Decrease in the costs of production would cause the supply of oil to go up as it would become more profitable.
    Let's say you can charge $100 per barrel and it costs you $40 to produce one unit. Your profit is $60. If the costs would go down to $20 you would get $80 of profit. It's only four marks so that could be enough, however you could add a graph showing a shift in the supply curve and say that, in theory, higher supply would push the price down.

    2) Think about external factors, war is a good example. Maybe mention alternative fuels (less demand for oil therefore less supply). OPEC changing their production quotas would also affect the supply.
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Updated: November 10, 2008
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