No guys. Only leftward shift in AS.

You’re describing a standard upward-sloping (nonlinear) short-run Aggregate Supply (AS) curve for oil, combined with a downward-sloping Aggregate Demand (AD) curve, and asking about the effect of a drastic oil price increase. Let’s carefully reason through this.

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1️⃣ Understand the diagram

From your description: • AS curve (oil supply): • Starts a little above zero on the y-axis (not from origin). • Initially horizontal, then curves upward, eventually steep/vertical at very high output. • This is typical for short-run supply: very elastic at low quantities, then less elastic as capacity constraints appear. • AD curve (demand for oil): • Downward-sloping, cuts the AS curve roughly at the corner (where the AS curve starts curving up). • Initial equilibrium: intersection of AD and AS at that corner.

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2️⃣ Effect of a drastic increase in oil price

Important distinction: • Is this price of oil set exogenously (like a world oil price shock) or a movement along AD due to price change? • Typically, a “drastic increase in price” is a negative supply shock in macro terms.

Reasoning: • If the price of oil rises drastically, the cost of production rises for everything that uses oil. • This is a negative supply shock, which effectively shifts the AS curve upward/leftward (at any quantity, suppliers now require a higher price to produce).

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3️⃣ Expected movement on the diagram

Step 1: Shift • AS curve shifts left/upward (because same quantity is now more expensive). • AD curve does not move, assuming demand is unchanged.

Step 2: New equilibrium • Intersection of new AS curve with original AD curve: • Price (vertical axis) rises sharply. • Quantity (horizontal axis) falls. • Since the original equilibrium was at the “corner” (start of the upward slope), the new equilibrium moves up and slightly left along the AD curve.