The island of Borneo is famous internationally for its rainforests which can bring many benefits, both private and external. However, the economy is heavily dependent on a finite resource, oil. The discovery of oil reserves in other parts of the world led to a significant fall in the world price of oil. This affected producers of oil in Borneo. Analyse, using a demand and supply diagram, the effects on the world price of oil of the discovery of new reserves of oil.

Economics

IGCSE&ALevel

CAIE

Exam No：0455_w21_qp_21 Year：2021 Question No：3(c)

Answer:

Up to 4 marks for the diagram:
Axes correctly labelled – price and quantity or P and Q (1).
Original demand and supply curves correctly labelled (1).
New supply curve shifted to the right (1).
Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the
equilibrium points E1 and E2 (1).
Up to 2 marks for written comments:
Discovery of new oil will enable an increase in supply (1) price will be
lower (1).

Knowledge points:

2.4.4 conditions of suppl; The causes of shifts in a supply curve with appropriate terminology, for example increase and decrease in supply.

2.5.1 market equilibrium; drawing and interpretation of demand and supply schedules and curves used to establish equilibrium price and sales in a market.

Answer:

Knowledge points:

Solution:

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