Norfolk Alumni Chapter, Incorporated... B Content X C CENGAGE | MINDTAP Homework (Ch 04) Suppose you are an analyst in the oil refinery industry and are responsible for estimating the equilibrium price and quantity of home heating oil. To do so, you must consider factors that can affect the supply of and demand for heating oil. Determinants of the demand for heating oil include household income, the price of an oil furnace (a complementary good for heating oil), and the price of natural gas (a substitute good for heating oil). Determinants of the supply of heating oil include the cost of crude oil and the cost of refining crude oil into home heating oil. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to the graph parameters. (Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.) Graph Input Tool ? Market for Heating Oil Market for Heating Oil Price of Supply Heating oil Dollars per barrel) 8 8 8 8 8 8 8 Quantity 100 Quantity 60 Demanded Supplied PRICE (Dollars per barrel) (Thousands of (Thousands of barrels per barrels per day day) 20 40 60 80 100 120 Demand Shifters Supply Shifters QUANTITY (Thousands of barrels per day) Price of 10 Cost of 25 Natural Gas Crude Oil (Dollars per (Per barrel of 1/000 cubic heating oil) ft. ) Price of an 2000 Cost of 15 Oil Furnace Refining Oil (Dollars per (Per barrel of furnace) heating oil) Average 40 Annual Income Thousands of dollars) Initially, the price of natural gas is $10 per 1,000 cubic feet, the price of an oil furnace is $2,000, the average annual household income is $40,000, the cost of crude oil is $25 per barrel of heating oil, and the cost of refining oil is $15 per barrel of heating oil. The equilibrium quantity in this market is thousand barrels of heating oil per day, and the equilibrium price is s per barrel. Suppose that the cost of refining oil increases from $15 to $25 for each barrel of heating oil produced. Assuming that the rest of the determinants of supply and demand for heating oil remain equal to their Initial values, the market will eventually reach a new equilibrium price of per barrelGraph Input Tool ? Market for Heating Oil Market for Heating Oil Price of Supp 30 Heating oil (Dollars per barrel) Quantity 100 Quantity 60 0 8 8 8 8 8 8 8 Demanded Supplied PRICE (Dollars per barrel) (Thousands of (Thousands of ! Demand barrels per barrels per day day 20 40 60 80 100 120 140 160 Demand Shifters Supply Shifters QUANTITY (Thousands of barrels per day) Price of Cost of Natural Gas Crude Oil (Dollars per (Per barrel of 1,000 cubic heating oil) ft. ) Price of an 2000 Cost of 15 Oil Furnace Refining Oil (Dollars per (Per barrel of furnace) heating oil) Average 40 Annual Income (Thousands of dollars) Initially, the price of natural gas is $10 per 1,000 cubic feet, the price of an oil furnace is $2,000, the average annual household income is $40,000, the cost of crude oil is $25 per barrel of heating oil, and the cost of refining oil is $15 per barrel of heating oil. The equilibrium quantity, in this market is thousand barrels of heating oil per day, and the equilibrium price is s per barrel. Suppose that the cost of refining oil increases from $15 to $25 for each barrel of heating oil produced. Assuming that the rest of the determinants of supply and demand for heating oil remain equal to their initial values, the market will eventually reach a new equilibrium price of per barrel. In the graph input tool, reset the price of heating oil to its equilibrium value that you found in the first question. Then reset the cost of refining oil to its initial value. (Hint: When you click in the box, you will see a circular arrow to the left of the box that enables you to reset numbers to their initial values.) Suppose that instead of a change in the cost of producing heating oil, there was an increase in average annual income from $40,000 to $50,000. If the price of heating oil were to remain at the initial equilibrium price you found in the first question, there would be of heating oil, which would exert pressure on prices. Grade It Now Save & Continue Continue without saving @ 2 3 A