2. Between 2014 and 2016, a number of events have affected the world market for oil: (1) deep fractures within OPEC have caused an increase in oil pumping; (2) as sanctions against Iran were lifted, Iran has been able to increase sales of its oil in the world market; (3) China's economy has slowed down decreasing its needs for oil.

a.For each of the three events above, explain (i) whether they affected the demand or the supply and (ii) how they affected it (contraction or expansion).

Suppose that, as a result of these three events, the world market for oil experienced an overall reduction in demand and an overall expansion in supply.

b.Can you unambiguously predict the qualitative (up or down) effect of these events on (i) the equilibrium price of crude oil and (ii) the equilibrium quantity of crude oil? Explain in less than five lines and illustrate it on a graph.[Assume that the world demand for oil is downward sloping and the world supply of oil is upward sloping. In your explanation, do not just describe your graph, but explain the intuition of your answer]

Suppose that, holding the price of crude oil constant, the increase in world supply (the shift in supply) is equal to the contraction in world demand (the absolute value of the shift in demand). Further, assume that the world demand for oil is more elastic than the world supply of oil.