Hurricane Delta is shutting down and threatening oil rigs in the Gulf of Mexico. This is driving up...

Question

Hurricane Delta is shutting down and threatening oil rigs in the Gulf of Mexico. This is driving up oil prices. Taking into account the cross-price elasticity of demand between oil and gas, what is likely to happen to the demand for natural gas? What is likely to happen to the price of natural gas? Typically, about 25% of New Mexico state revenues come from the oil and gas industry through, for example, taxes and land rental fees. If prices are increasing in oil and natural gas, will this be good or bad for New Mexican government revenues? (Think about the relationship between the elasticity of demand and total revenue.)
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Sudipta · Accepted Answer

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Discussion
Concept of substitute product has taken place in this context. Natural gas is always a substitute product of oil. As per the situation given, it can be determined that oil prices are getting increased as a result, oil consumer will switch from buying oil to buy natural gas. As demand of natural gas will increase, therefore, there will be some lack in supply, as a result,

Hurricane Delta is shutting down and threatening oil rigs in the Gulf of Mexico. This is driving up oil prices. Taking into account the cross-price elasticity of demand between oil and gas, what is...

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