An increase in the price of home heating oil during an unusually cold winter illustrates which economic principle?

An increase in the price of home heating oil during an unusually cold winter illustrates which economic principle?

• A. Recession
• B. Private property rights
• C. Supply and demand
• D. Price controls

Answer: (C)

When demand for a good rises, its price tends to go up to balance what people want with what’s available. An unusually cold winter makes more households need heating oil, shifting the demand curve to the right. If the supply can’t quickly increase to meet that higher demand, the market price rises. Heating oil is relatively inelastic in the short term, so the price can jump a lot while quantities adjust more slowly. This is a clear example of how supply and demand determine prices in a free market. The other ideas don’t fit this situation: a recession describes a broad economy-wide decline, not a price move for a specific good; private property rights are about ownership, not price changes; price controls would limit how high prices can rise, whereas here the price increases in response to market forces.

When demand for a good rises, its price tends to go up to balance what people want with what’s available. An unusually cold winter makes more households need heating oil, shifting the demand curve to the right. If the supply can’t quickly increase to meet that higher demand, the market price rises. Heating oil is relatively inelastic in the short term, so the price can jump a lot while quantities adjust more slowly. This is a clear example of how supply and demand determine prices in a free market.

The other ideas don’t fit this situation: a recession describes a broad economy-wide decline, not a price move for a specific good; private property rights are about ownership, not price changes; price controls would limit how high prices can rise, whereas here the price increases in response to market forces.