If the expected future price of oil falls, then

Question

Quizplus · Accepted Answer

If the expected future price of oil falls, the supply of oil would decrease as it would become less profitable for firms to produce. In turn, the decrease in supply would cause an increase in the equilibrium price. However, if the decrease in expected future price also causes a decrease in demand for oil, then both the equilibrium price and quantity would fall. Therefore, the equilibrium price would fall but the change in the equilibrium quantity will depend on whether the demand change outweighs the supply change.

If the Expected Future Price of Oil Falls, Then