In the short run, with the price of oil plummeting due to a trade agreement, there will be an immediate decrease in the cost of oil for businesses and consumers. This rapid decline in oil prices will likely lead to lower production costs for industries dependent on oil, such as transportation, manufacturing, and energy production. As a result, businesses may experience increased profitability and could potentially lower the prices of their products and services to attract more customers. Additionally, consumers may benefit from decreased fuel prices, leading to more affordable transportation and reduced costs for goods and services that rely on oil.
In the long run, the effects of plummeting oil prices due to a trade agreement may be more complex. While low oil prices can boost economic growth, it can also have negative consequences. In the long run, oil-producing countries could face significant economic challenges as their revenues heavily depend on oil exports. Governments in these countries might struggle to generate enough revenue to finance public services and infrastructural projects, leading to potential budget deficits and economic instability.
On the other side, low oil prices can also impact renewable energy industries negatively. With cheaper oil, there is less incentive for businesses and consumers to invest in alternative, sustainable energy sources. Therefore, the long-term impact of plummeting oil prices due to a trade agreement can involve a mix of advantages and disadvantages, affecting different sectors and economies in various ways.
Give a brief description in words of what happens in the short run and long run in each scenario.
The price of oil plumments due to a trade agreement
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