Solved Problem 3.3 claims that a new war in the Persian Gulf could shift the world supply curve to the left by 3 million barrels a day or more, causing the world price of oil to soar regardless of whether we drill in ANWR. How accurate is that claim? Use the same type of analysis as in the solved problem to calculate how much such a shock would cause the price to rise with and without the ANWR production.
Problem 3.3
Six out of ten teens no longer use watches to tell time-they've turned to cell phones and iPods. Sales of inexpensive watches dropped 12% from 2004 to 2005, and sales of teen favorite, Fossil, Inc., fell 19%. (Leslie Earnest, "Wristwatches Get the Back of the Hand," Los Angeles Times, April 16, 2006.) On the other hand, the price of inexpensive watches has not changed substantially. What can you conclude about the shape of the supply curve? Illustrate these events using a graph.