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Unformatted text preview: a bar, and the
equilibrium quantity is 10 million bars a week. When the
new cost-saving technology is adopted, the supply of
energy bars increases and the supply curve shifts rightward
to become the red curve.
At $1.50 a bar, there is now a surplus of 10 million
bars a week. The price of an energy bar falls to a new equilibrium of $1.00 a bar. As the price falls to $1.00, the
quantity demanded increases—shown by the blue arrow on
the demand curve—to the new equilibrium quantity of 15
million bars a week. Following an increase in supply, the
quantity demanded increases but demand does not
change—the demand curve does not shift.
animation 9160335_CH03_p053-080.qxd 8:56 AM Page 68 CHAPTER 3 Demand and Supply How Markets Interact to
Fuel, Food, and Fertilizer
The demand and supply model provides insights
into all competitive markets. Here, we’ll apply what
you’ve learned to the markets for
■ Crude oil
Fertilizers Crude Oil
Crude oil is like the life-blood of the global economy. It is used to fuel our cars, airplanes, trains, and
buses, to generate electricity, and to produce a wide
range of plastics. When the price of crude oil rises,
the cost of transportation, power, and materials all
In 2006, the price of a barrel of oil was $50. In
2008, the price had reached $135. While the price of
oil has been rising, the quantity of oil produced and
consumed has barely changed. Since 2006, the world
has produced a steady 85 million barrels of oil a day.
Who or what has been raising the price of oil? Is it
the fault of greedy oil producers?
Oil producers might be greedy, and some of them
might be big enough to withhold supply and raise the
price, but it wouldn’t be in their self-interest to do so.
The higher price would bring forth a greater quantity
supplied from other producers and the profit of the
one limiting supply would fall.
Producers could try to cooperate and jointly withhold supply. The Organization of Petroleum Exporting
Countries, OPEC, is such a group of suppliers. But
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