Supply and Demand - Example of Oil Price Essay

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PRINCIPLES OF ECONOMICS

Assignment
Group members Nguyen Dat Anh Ho Ngoc Son Nguyen Thai Ha Nguyen Thi Huyen Trang Luyen Trung Kien

Article’s link: http://news.bbc.co.uk/2/hi/7048600.stm
Wednesday, 2 January 2008, 22:36 GMT

What is driving oil prices so high?
Oil prices have hit a record high at $100 a barrel. Prices have doubled from the rates seen in January 2007 and more than quadrupled since 2002. What factors are causing this unremitting increase and what are the likely consequences for consumers and the global economy? What is causing the latest price spike? This was triggered by concerns about violence in Nigeria and Algeria as well as the delay of the elections in Pakistan. The assassination of the former Pakistani …show more content…
- New achievements in technology supported firms in processing oil. 3.

The chart above provides information about selling and buying oil. Obviously, both demand curve and supply curve were shifted to the right.

Firstly, the rapid development of economy and transportation caused the using of gasoline to rise. For this reason, the demand for oil increased and the demand curve shifted to the right. Secondly, new achievements in technology supported the oil processing a lot, so more gas and petrol were made and sell. Totally, the supply curve also moved to the right. For the last 40 years, both the supply and the demand for oil grew considerably and caused the increase in the price. 4. Comments on elasticity: - Both the demand and supply of oil are relatively inelastic in the short run: changes in price have little impact on either the quantity demanded or the quantity supplied. When oil prices rise we spend considerable time and energy complaining but spend almost no effort in trying to adjust our habits to consume less. Similarly changes in price do little to spur new supplies in the short run. Exploring for, drilling, and bringing new sources on-line can take many years. Since the quantities demanded and supplied change very little as prices rise and fall. Besides, the substitute for oil is very scarce. - Demand and supply are far more elastic in the long run. After oil prices rose, firms began shifting to less energy-intensive ways of
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