In August 2005, Hurricane Katrina damaged or destroyed oil platforms in the Gulf
ID: 1165925 • Letter: I
Question
In August 2005, Hurricane Katrina damaged or destroyed oil platforms in the Gulf of Mexico, refineries along the Gulf coast, and the pipeline infrastructure that transports oil and gas to customers across the eastern United States. The winter of 2005 was also unusually cold in many parts of the country. How did these events affect the market for natural gas and heating oil? Demand left; supply right; price falls; quantity uncertain Demand right; supply right; price uncertain; quantity rises Demand right; supply left; price rises; quantity uncertain Demand left; supply left; price uncertain; quantity fallsExplanation / Answer
Answer : The correct option is C.
Because in unusual cold winter season the demand for heating oil and natural gas increase as households needs more heating oil and natural gas to maintain the temperature in houses. In case of increased demand the demand curve shifts to rightward. As Hurricane Katrina destroyed the oil and gas supply platforms and refineries and pipeline infrastructures, the supply of heating oil and gas in the market decrease. In case of decreased supply the supply curve shift to leftward. In case of both higher market demand and less market supply the market price level rise. As market demand high suppliers will try best to supply more oil and gas in the market but as supply related materials are destroyed it not possible to decide how much oil and gas will be supplied in the market and hence the market quantity level is uncertain.