Vertical axis and quantity on the horizontal

Reference no: EM133711182

Question: In a market economy, we can show the supply of a general commodity using curves that plot price (on the vertical axis) and quantity (on the horizontal axis). Although each commodity has a unique supply curve, they generally follow the law of supply. This means that as the price increases, the quantity supplied also tends to increase. Let's consider oil as an example of such a commodity. When the price of crude oil is very low, only the cheapest sources of oil, such as those from Saudi Arabia, are profitable to extract and sell. As the price of crude oil rises above the cost of production, more expensive sources of oil are then economically viable to develop. For instance, Alaskan crude oil becomes profitable when the price exceeds $10 per barrel. Similarly, oil from the deepwater fields in the U.S. Gulf of Mexico starts to be produced when the price climbs above $50 per barrel. In essence, higher oil prices lead to the development of more costly oil sources. If you draw a line from the low-cost oil to the high-cost oil on a graph with price on the vertical axis and quantity on the horizontal

Reference no: EM133711182

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