When Iraq invaded Kuwait in 1990, the market price of crude petroleum jumped from $21.54 per barrel to $30.50 per barrel - an increase of almost 42 percent. Your boss is puzzled, because the price increase actually occurred before there was a physical reduction in the current amount of oil available for sale.
a. Explain why the price of oil increased so rapidly.
b. One year after the invasion, the price of oil fell to $21.32 per barrel, its prewar level. Explain why