Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 2 How Markets Work
Chapter 5 of 36 Elasticity and Its Application
Section 20 of 22
…
Figure 8 - A Reduction in Supply in the World Market for Oil
When the supply of oil falls, the response depends on the time span considered.
Panel (a) in the short run
· supply and demand are relatively inelastic
· when the supply curve shifts from S1 to S2, quantities q1 to q2, the price rises substantially
Panel (b) in the long run
· supply and demand are relatively elastic
· the same size shift in the supply curve, S1 to S2, same q1 to q2, causes a smaller increase in the price
….
Figure 8 panel (a) short run.
The short run supply and demand curves are steep because both supply and demand are inelastic.
When supply of oil shifts from S1 to S2 the price increase from P1 to P2 is large.
In the short run although each OPEC member sold smaller quantity of oil the price rose a higher percentage than quantity fell so their total revenues rose.
…
Panel (b) long run.
The long run supply and demand curves are relatively flat because both supply and demand are elastic.
When supply of oil shifts from S1 to S2 the price increase from P1 to P2 is small.
In the long run
· non-OPEC oil suppliers respond to high prices by increasing oil exploration and constructing new extraction capacity
· consumers respond by reducing oil product usage, including replace old fuel-inefficient cars with new efficient ones
…
In the long run
· supply and demand are more elastic
· the same reduction in supplied quantity
· causes a smaller increase in the price
· resulting in lower total revenues for supplying companies at the higher price
… …
efficient, inefficient
kōritsu-teki, hikōritsuteki
効率的、非効率的

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