How big of a fire could push up the petrol prices up so high? This article is regarding the two effects after the outbreak of the fire on the prices of petrol.
Supply is the quality of a good or service that a producer is willing and able to produce at a given price. According to the article, the first example is traced to the Coryton refinery where the outbreak was taken place. The outbreak caused the petrol supply to be cut one fifth short from the UK daily fuel supply. "If the refinery fire affects supplies, this could be sufficient to push the average petrol price over the ÃÂ£1 per litre mark for the first time ever." Oil is a scarce natural resource, which is why there is no method to increase the supply of the oil. Due to these reasons, the supply for oil is decreased and on the graph supply curve shifts to the left and creates a shortage.
The shortage then causes the price of oil to shift upwards. As shown on the graph, the supply curve shifts from S0 to S1. This results in the initial price level pushing up from P1 to P2. Demand is the quantity of a good or service that a household or firm chooses to buy at a given price. Consumers cannot transfer to another good in the short-run because there are only a few substitutes for oil. Thus, the quantity demanded will not shift in the short-run. However, in the long-run, consumers will find other variables to take place of the petrol.
Price elasticity of demand is the responsiveness of quantity demanded to a change in is price. We know that oil is inelastic because there are only a few substitutes for oil and it is a short time...