Case-4

In the latter half of 2009, oil prices decreased by more than half. According to the Gulf countries government figures, demand for oil was low across the world. This low demand also put downward pressure on oil. As per a recent report, until 2022, the demand will continuously be low decreasing by 0.5%. Furthermore, the overall business confidence was weak, with a rising worry about whether the economy in the Gulf region would recover its negative growth. In addition, the substantial deficit in the governments was also estimated to increase which also will result increasing in cutbacks and taxes. The dramatic drop in oil prices around the world in 2015 is causing GCC Governments to review spending to ensure public projects are necessary, affordable, and efficient and to continue to diversify their economies. In order to control oil prices, oil-producing countries have to cut down the production of oil. However, analysts estimate that, at present, about one million barrels of oil are being produced over and above daily requirements. With supply remaining much higher than demand, prices have fallen.

Question-4

i) Explain why the demand for oil is relatively inelastic with respect to price. (2 marks)

ii) The outbreak of corona virus has affected the business of automobiles all over the world. How will it

affect the demand for oil? Explain (2 marks)

iii) If the price oil is decreasing and the supply remains the same, how will it affect the market

equilibrium? Explain. (3 marks)

iv) Using the concept of elasticity, explain how the price of oil affects the demand for cars. (3 Marks)