OPEC announces it will increase oil production by 20 percent. What is the effect of this action on the price of oil now? will , causing the price of oil to . b. Demonstrate your answer graphically. Instructions: Draw a parallel shift in either the demand or supply curve by grabbing, dragging, and then dropping the curve to the new position.

An increase in the production leads to decline in the price. Producers are likely to supply more at the lower price or the existing price, considering the increase in production. If there is a 20 percent increase in the production, then it tends to increase the supply. An increase in supply will have a negative impact on price.

The effect of the increase in production on price is shown in the above figure. A twenty percent increase in the production causes an increase in the supply. Excessive supply causes a reduction in the price. Hence, when the supply increases from P1 to Q2, the price decreases to P2 from P1.

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