Demand supply of a particular product. A positive supply

Demand for food is increasing and Supply of Labouris decreasing Historical &Geographical Location: Canada,(1941-1945) Chronicle of the event: In Year 1941-1945, during World War II, Canada face theproblem of increase in the demand for Food decrease in the supply of labour.The war was the most expensive conflict in human history which directlyinvolved the majority of nations.

The war brought about dramatic technologicaland sociological changes to world, including Canada. In total, it is estimatedthat 62,000,000 people died as a result of the Second World War. Breakdown of theevent: Over 1.1 millionCanadian served in Canadian army, Royal Canadian Navy, Royal Canadian Airforceand in forces across the commonwealth. More than 44000 lost their lives and54000 were wounded during war which results into substantial drafting of farmworker into the armed services and war industries, and country face shortage oflabour in the farm.  Consequences of theevent: The migratoryworkers were drawn away from agricultural works towards higher paying jobs inthe defence work.

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This resulted into equal increase in demand of foodproportionately equal to decrease in the supply of labour. Policy Remedy: To overcome this,country encouraged farmers to increase their ability to production of food anddo not worry about sales and margin of profit. Farmers had to utilize alternatework forces such as women and youth. Students were released from school earlyto help on the farms as long as they were completing their grades. After year,Canadian government created labour recruitment and placement programs and setuphostels for girls who work in the farm. Comment: With the increase in population, the demand for food wasincreasing but there was a lack of farmers in the field. As there was goodmoney in defence work, people were more inclined towards that and got driftedaway.

 References:  Evidence 2:1973, Oil Crisis Historical &Geographical Location: USA,1973 Chronicle of the event: In 1973 oil crisis, there was a negative supply shock ofoil with the inflationary demand for oil in the USA. A supply shock isbasically an event that triggered a sudden increase or decrease of supply of aparticular product. A positive supply shock causes increase in the supply ofparticular product and negative supply shock causes decrease in the supply of aparticular product.

  On October 16th 1973,the members of the Organization of Arab Petroleum Exporting Countries (OAPEC,consisting of the Arab members of OPEC plus Egypt and Syria) proclaimed an officialban on oil against Canada, Japan, the Netherlands, the United Kingdom and theUnited States. The embargo was a response to American involvement in the 1973Yom Kippur War. Six days after Egypt and Syria launched a surprise militarycampaign against Israel, the US supplied Israel with arms.  Breakdown of theevent: As seen from figure 6, the demand for oil by U.S.

was on anincreasing spree towards 1974 while supply of oil to U.S. indicates a downwardstrend. In terms of market equilibrium prices, the increase in demand caused thedemand curve to shift to the right while the declining supply led the supplycurve to shift leftwards, thereby creating new market equilibrium with aninflated price of oil. Thus at the end of the embargo in March 1974, the priceof oil had risen from U.S. $3 per barrel to nearly $12 globally; US prices weresignificantly higher.

To add – during this time, the world produced over 2.5billion new motor vehicles, half of which were in the United States.Transportation accounted for almost 70% of all US oil consumption, of which 2/3is motor gasoline.

With 6 percent of the world’s population then, the U.S. wasconsuming 33 percent of the world’s energy.

Also referring to data in table 2,there has been a 50 percent rise in the consumption of oil by U.S. from 1965 to1974, confirming that demand for oil in U.S.

was increasing and is supported bydata from Energy information administration. America’s 35% oil consumption wasprovided by OPEC at the time.   Consequences of theevent: The embargo both bannedpetroleum exports to the targeted nations and introduced cuts in oil productionthus forcing oil companies to increase payments drastically. Thus U.S.

importsof oil reduced from 1.2 million barrels per day to 19000 barrels per day. Also,U.S.

oil production started to decline, exacerbating the embargo’s impact asseen from table 1.  Policy Remedy: Production of oil by the OPEC countries was eventually cut by 25%,thereby causing reduction in its supply of oil to US.  The rising demand and reducing supply of oil,led US retail price of gas prices to rise from a national average of 38.

5 centsin May 1973 to 55.1 cents in June 1974. Comment: The 1973 Oil Embargo acutely straineda U.S. economy that had grown increasingly dependent on foreign oil.  From the above analysis we can say that 1973oil supply shock caused aggregate demand for oil to increase at the same ratethat of its aggregate supply.