Fig. 2: Illustration of supply and demand in the short term and in the very short term.
From: The effect of European fuel-tax cuts on the oil income of Russia
a, In the short term, oil demand for road transport in the EU (DEU) increases by a tax cut (the DEU demand curve shifts to the right from the solid to the dashed line position). Consequently, total world oil demand (DEU+ROW) increases by an equal amount (the DEU+ROW demand curve shifts to the right from the solid to the dashed position). World oil supply (S) is fixed (inelastic) and a new, higher, equilibrium price is attained (dashed line) at the same quantity level. b, In the very short term, oil demand for road transport in Europe (DEU) increases by a tax cut as in the short term, but due to transport rigidities, the EU is modelled as an isolated market. Hence, the total demand equals EU demand (DEU). Supply to the EU (SEU) is fixed (inelastic) and a new, higher, equilibrium price is attained (dashed line) at the same quantity level.
