The military engagement in iraq have caused much concern

Reference no: EM13945346

The military engagement in Iraq have caused much concern about how this might affect oil prices. Specifically, can Iraq, by withholding some of its oil production, affect world prices and potentially cause harm to the US economy? A simple supply-demand model can be used to suggest the potential size of such a problem.

Suppose demand and supply for crude oil in the world market is given by the following two equations:

Q_D = 80 - 0.4P

Q_S = 55 + 0.6 P

where Q_D is the quantity of crude oil demanded in millions of barrels per day and P is the price in dollars per barrel.

Suppose the world lost Iraq's oil production, which was 2.5 million of barrels per day. As a result of this decrease in supply, we can expect the supply of oil to decrease by _________

Reference no: EM13945346

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