Hi, currently not learning for an exam, but we were discussing an economic question where you could probably help. Assume we have an increasing oil price. What are the effects on oil importing and oil exporting countries? How are the curves shifting? I think it makes sense to distinguish between exporting and importing countries? What are the impacts on fiscal and trade balance? Will there be a shift for that curves too?
I may be talking out of my behind here because my economics is very rusty (VERY, Freshman year been a longtime type of rusty), but I believe this will cause a movement and not a shift in curves because there is a change in price which does not shift the curve. Importing countries will import less and there will be less demand due to a higher price. Suppliers tend to supply more at a higher price, but if demand is low, and supply is high then that should push prices down. Not sure what you mean by the impacts on fiscal and trade balance.
It’s a movement along the supply curve, not a shift in the supply curve.
I don’t know if it’s for a homework or for a real life conversation. In this case, the answer could be a lot more complex than “the curve is moving to the right”. I will do a kind of introduction.
yes it does make sense to separate importing and exporting countries
The elasticity of demand is low and the time to produce new oil is long (all the process of oil producing). Supply/demand doesn’t really change in the short run ; people are spending more on oil.
so in the short run nothing really moves because people can’t stop using oil and the oil industry takes time to produce more (because of a higher price). Of course, in real life, the politic aspect of oil price could be important. I mean by that the effect of the OPEC changing his production capacity.
In almost all circumstances, Higher (lower) fiscal and trade balance for exporting (importing) countries
Thanks for the answers. Basically it is the homework from one of my colleague’s daughter and we discussed it yesterday at work
In my opinion for the oil importer there is a left shift in supply because of higher input prices goods become more expensive and so demand decreases.
I’m struggling a bit with the exporter. As Matick21 said demand is inelastic for oil but supply can be amended in the short run (that’s my opinion, we saw it in the last years, stop of production with small prices). So I would say for the exporter supply (in whole economy) will rise because there is more money in the cycle (trade balance improves)
In my opinion, this is partially true. Yes, it’s relatively “easy” to cut the production. If the price is under the variable cost (small price) then the oil production should be cut.
In our case, we need an increase in production because of higher price and this is clearly less easy. In the oil crisis in 1973, oil producers have had trouble to increase their production even if the price had more than double.
This is still a movement along the supply curve and not a shift. If however you were to say that it is harder to produce oil hence why we have higher prices, then we have a shift as a result of higher input prices. However, just a rise in price, everything else held constant does not shift either the demand or supply curve.