Increases in the price of petroleum affect the demand curve for aluminum. Petroleum- based chemicals (petrochemicals) are the main raw material used for plastic. Plastics are used to make many products, including beverage containers, auto parts, and construction materials. An alternative to plastic in these (and other) uses is aluminum. Thus, plastic and aluminum are substitutes. An increase in petroleum prices increases the cost of petrochemicals. Petroleum prices also affect the supply curve for aluminum. Increases in petroleum prices tend to raise energy prices, including electricity prices. Electricity is a very important input in producing aluminum. Therefore, increasing petroleum prices tend to increase the cost of electricity. In a supply-and-demand diagram, show how an increase in petroleum prices affects the demand curve and supply curve for aluminum. If the price of petroleum rises would the price of aluminum rise, fall, remain unchanged, or is the result indeterminate? Would the quantity of aluminum sold rise, fall, remain unchanged, or is the result indeterminate? Explain your answers.

  • CreatedNovember 13, 2014
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