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Analyzing Shifts in Market Supply
Consider two scenarios in the global market for crude oil:
Scenario A: A major oil-producing nation unexpectedly discovers and begins extracting from a massive new oil field, significantly increasing its production capacity.
Scenario B: The global price of crude oil rises, and in response, existing oil producers increase their output by reactivating previously idle drilling rigs.
Analyze both scenarios. Explain which scenario represents an exogenous supply shock and why. In your explanation, clarify the fundamental difference between an event that causes the entire supply curve to shift and an event that causes a movement along the existing supply curve.
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