In an economy where heating oil is the primary source of heat for new households, new supplies of natural gas, a substitute for heating oil, are discovered. Natural gas provides heat at a much lower cost. What is the most likely effect of these discoveries on the market price and quantity of heating oil produced?
Question 2 options:
price will decrease; quantity will decrease
price will decrease; quantity will increase
price will increase; quantity will decrease
no change in price; no change in quantity
1 answer
The most likely effect of the discovery of new supplies of natural gas, a substitute for heating oil, is that the market price of heating oil will decrease and the quantity produced will also decrease. As natural gas provides heat at a much lower cost, consumers are likely to switch from heating oil to natural gas. This decrease in demand for heating oil will lead to a decrease in its market price. Additionally, as the demand for heating oil decreases, producers will likely scale back their production, resulting in a decrease in the quantity of heating oil produced.
3 answers