ECO402 GDB Fall 2013 solution required before 20 november 2013

The Case:

Libya’s economy primarily depends on petroleum sector, which accounts for approximately 95% of export earnings, 87% of government receipts and 70% of GDP. This country is one of the committed members of OPEC (Organization of Petroleum Exporting Countries). In the international market, demand for the oil has increased rapidly as oil is not only the foundation for the plastics and petrochemical industries but also mainly consumed for transportation and energy production. In last few years, Libya’s economy has faced tough time due to political instability, bad security conditions and administrative weaknesses. Due to these adverse conditions, Libya has significantly reduced the supply of oil in international market which in turn has created shortage of oil in the international market.

Requirement:

Being a student of economics, discuss how the shortage of oil in the international market would affect the other products demand and supply in the economy of Pakistan. Explain logically.