Short Run And Long Run Effects - 1405 Words

Short Run and Long Run Effects In the short run, both global demand and supply of oil are relatively inelastic because it is difficult for them to make large adjustments to price changes in a short period of time. When oil price rises, oil consumers, such as manufacturing firms and households, may not be able to reduce their demand for oil immediately. For example, individuals still need to drive to work and manufacturing firms with long-term contracts still need to run machinery to meet target output. Similarly, an increase in oil price would not stimulate oil supply in the short run. Additional supply generally requires the exploration of new reserves and construction of new infrastructure for delivery which require substantial†¦show more content†¦Simultaneously, traditional manufacturing sectors would suffer from rising input costs and reduced competitiveness in the international market. The net effect would be a decrease in total real exports. Moreover, the reallocation of resources, labor and capita l would occur in favor of oil industry. The extent of these long run effects would depend on the magnitude of initial price shock and the duration of price increases. Impacts of Rising Oil Prices on Canadian Output A significant increase in oil price would have little impact on Canadian overall output but large regional and sectoral implications. The oil-producing provinces would benefit from rising income while the oil-consuming ones would suffer due to the higher cost of living and production. This would also lead to reallocation of capital and labor across energy and other industries. Potential impacts are expected to be more pronounced in the long run than in the short run because of relative inelasticity of oil demand and supply in the short run. Canada is the world’s fifth-largest oil producer, with daily production of more than 3.6 million barrels in 2015 (Statistics Canada). Despite large national production, Canada only produces about 5% of world’s total daily production and thus does not have large influencing power on the international oil price. Since February 2016, oil price has shown an upward trend. It soared from USD$29.44 per barrel in February 2016 to USD$54.45 per barrel in FebruaryShow MoreRelatedAggregate Demand and Aggregate Supply911 Words   |  4 Pagesand Aggregate Supply 11. For each of following events, explain the short-run and the long-run effects on the output and the price level, assuming policymakers take no action. (a) The stock market declines sharply, reducing consumers’ wealth. AS1 AS2 AD1 AD2 Y2 Y1 P1 P2 P3 LRAS A B C P AD-AS diagram Output 0 Since the stock market declines sharply, the people’ wealth are being affected. In short run, it leads to a fall in aggregate demand which would shift aggregate-demandRead MoreAs/Ad Model1332 Words   |  6 PagesEconomists who focused on the short run * John Maynard Keynes - their leading advocate * the originator of macroeconomics as a separate discipline from micro * Classical Economists – economists who focused on long-run issues such as growth * Aggregate Demand Management – government’s attempt to control the aggregate level of spending in the economy * Equilibrium Income – the level of income toward which the economy gravitates in the short run because of the cumulative cyclesRead MoreAggregate Demand And Aggregate Supply1154 Words   |  5 Pagesto answer a single question at the end of a study week. But being able to make a brief summary, on the other hand, will steer you up. 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Correct Answer:   Ã‚   It leads to increased price level, but there is no change in real GDP. Question 2 1 out of 1 points Which of the following would make the price level decrease and real GDP increase? Answer Selected Answer:   Ã‚   Long-run aggregate supply shifts rightRead MoreMicroeconomics Essay1164 Words   |  5 Pagesincreased substantially in the last three years, as a result of that; there have been apparent changes in the demand for electricity for the consumers and it has affected the producers supply market. In the following essay, we are going to look at the effect of the increase in the price of electricity in South Africa, using the supply and demand framework. The reason for the increase of the price of electricity is to balance out the supply and demand of electricity. The National Energy Regulators of SouthRead More. Amos Mccoy Is Currently Raising Corn on His 100-Acre Farm and Earning an Accounting Profit of $100 Per Acre. However, If He Raised Soybeans, He Could Earn $200 Per Acre. Is He Currently Earning an Economic Profit? Why or Why Not?890 Words   |  4 Pagesfor your own Internet business. What will be your fixed and variable costs? Briefly discuss. 5. Explain the shape of the long-run average cost curve. How firms use the long-run cost curve to make choices about production? 6. What is the relationship between marginal cost and average cost? Briefly explain. 7. What distinguishes a firms short run period from its long run priod? Briefly explain. 8. As a farmer, you must decide how many times during the year to plant a new crop. Also, you mustRead MoreThe Effect Of Monetary Policy On Determination Of Coal Prices1013 Words   |  5 PagesTo examine the effect of monetary policy on determination of coal prices in the U.S., we rely on a dynamic framework of cointegrated vector autoregression (CVAR). The prerequisite requirement for the application of the CVAR approach is that the selected variables must be nonstationary (i.e., I(1) series). The presence of a unit root in the variables is thus tested using the Dickey Fuller generalized least squares (DF-GLS) test (Elliott et al., 1996). Panel A of Table 1 reports the results of theRead MoreThe Snap ( Supplemental Nutrition Assistance Program ) And Wic ( Women, Infants, Children ) Programs864 Words   |  4 Pageschanges on the supply and demand of rice. In the short run the price of rice will rise and the demand curve of rice will shift outward. This effect will take place beca use of SNAP’s proposed limitations. If the members of SNAP are limited to only food staples they will find themselves demanding more rice than before. This shift will cause an upward movement along the supply curve. There will be an increase in the quantity of rice supplied in the long run because the demand will have grown from the limitations