Question 8(a) As we can see from the graph, the price movements in oil from 2002 to 2011 were constantly increased from 2002 to mid of 2006 and it slightly decreased until 2007. Unfortunately, the oil price have a major increased from $55 per barrel to $145, the highest peak price among all these years in 2007 to July 2008, however, it doesn’t last any longer, in 2008 to 2009, the oil price dropped from $145 per barrel to $39 per barrel and this is also a major changes in price among these years. Then, the price of oil started to increase steadily after its major changes in price for the last one year.
Demand, in economic terms, shows how much of a product consumers are willing to purchase, at different price points, during a certain time period. After all, we all have limited resources, and we all have to decide what we're willing and able to purchase, and at what price. As an example, let's look at a simple model of the demand for a good – let's say gasoline. If the price of gas is $2.00 per litre, people may be willing and able to purchase 50 litres per week, on average. If the price drops to $1.75 per litre, they may be able to buy 60 litres. At $1.50 per litre, they may be prepared to purchase 75 litres. Note that while some gas usage is essential – driving to work, for example – some use is optional. Therefore, as gas prices drop, people may choose to make more optional trips during weekends, and so on.

This figure above illustrates the law of demand: as price falls, the corresponding quantity demanded tends to increase. Since price is an obstacle, the higher the price of a product, the less it is demanded. When the price is reduced, demand increases. So, there is an “inverse” relationship between price and quantity demanded.
However, the market for oil is unusual, because, in the short-term, both demand and supply are highly inelastic. Irrespective of