Refer to the graph on the right. Suppose that demand had stayed at the level indicated in thegraph, with the equilibrium price of oil remaining atUS$140 per barrel. Over long periods oftime, high oil prices lead to greater increases in the quantity of oil supplied. In otherwords, the price elasticity of oil increases. This happens because higher prices provide an economic incentive to recover oil from more costlysources, such as underoceans, from tar sands or at greater depths in the earth.

Use the line drawing tool to draw a new supply curve that is more elastic than the shown supply line and that also passes through the initial equilibrium point. Make sure the new supply curve intersects D2.

Carefully follow the instructionsabove, and only draw the required object. Click to

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graph

If the supply of oil becomes moreelastic, how will the increase in demand shown in the graph result in a lower equilibrium price thanUS$140 per barrel and a higher equilibrium quantity than 84 million barrels perday?

A.

Any increase in demand will result in a larger increase in price and a smaller increase in quantity than when the supply of oil is inelastic.

B.

Any increase in demand will result in a larger increase in price and a larger increase in quantity than when the supply of oil is inelastic.

C.

Any increase in demand will result in a smaller increase in price and a larger increase in quantity than when the supply of oil is inelastic.

D.

Any increase in demand will result in a smaller increase in price and a smaller increase in quantity than when the supply of oil is inelastic.