Use the calculator to help you answer the following questions.

3. Understanding changes in equilibrium price and quantity 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 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 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 80 Price of Heating oil 30 (Dollars per barrel) 70 Supply Quantity 100 Quantity Supplied 60 60 Demanded Thousands of (Thousands of barrels per day) barrels per day) 50 PRICE (Dollars per barrel) 40 Demand Shifters Supply Shifters 30 Price of Natural 10 Cost of Crude Oil (Per barrel of 25 Demand Gas 20 Dollars per 1,000 heating oil) cubic ft. ) 10 Price of an Oil 2000 Cost of Refining Oil 15 Furnace Per barrel of O (Dollars per furnace) heating oil) 0 20 0 60 80 100 120 140 160 Average Annual QUANTITY (Thousands of barrels per day) 40 Income Thousands of dollarsInitially, 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 day, and the equilibrium price is 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. 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 average annual income from $40,000 to $35,000. If the price of heating oil were to remain at the initial equilibrium price you found in the first question, there would be V of heating oil, which would exert '0' pressure on prices