Please help answer the questions at the bottom of the attached photo. Thanks!
Suppose you are an analyst in the oil renery 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 calculator to help you answer the following questions. You will not be graded on any changes you make to the calculator. (Note: Once you enter a value in a white eld, the graph and any corresponding amounts in each grey field will change accordingly.) Graph Input Tool Market for Heating Oil Market for Heating Oil 80 | Price of Heating oil T0 (Dollars per barrel) Quantit Quantity Supplied 2. 60 Deman ed 100 (Thousands of 60 g ( Thousands of barrels per clay) w barrels per clay) I! s. 50 (I) I]. E 40 Demand Shifters Supply Shifters E u 30 . . Price of Natural Cost of Crude Oil g Gas (,6, We, 0, r15 20 (Dollars per 1,000 heating oil) 5'- cubr'c ft.) 1" Price of an Oil Cost of Rening Oil Furnace 2000 (Per barrel of D ( Dollars per furnace) heating oil) a 20 40 an an 100 120 140 160 Average Annual QUANTITY (Thousands of barrels per day} 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 rening oil is $15 per barrel of heating oil. The equilibrium quantity in this market is E thousand barrels of heating oil per clay, and the equilibrium price is per barrel. Suppose that the cost of rening 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. Reset the calculator to its initial values. (Hint: when you click in the box of any changed values, 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 a decrease in the price of an oil furnace from $2,000 to $1,900. If the price of heating oil were to remain at the initial equilibrium price you found in the rst question, there would be v of heating oil, which would exert v pressure on prices
