ECON312N Principles of Economics
Week 2 Discussion
Demand, Supply, and Market Equilibrium
Read/review the following resources for this activity:
Textbook: Chapter 4, 5
Minimum of 1 scholarly source
In a market-oriented economy, a change in the price of a product is usually caused by changes in the factors that affect the demand and/or the supply of the product and the price elasticity of the demand for and the supply of the product.
Consider the market for crude oil. As you know, changes in the price of crude oil affect just about everything that is made, transported, eaten, and sold in the United States. For example, a change in the price of crude oil is likely to affect the prices of products like jet fuel, gasoline, diesel, home heating oil, just to name a few. There is a strong correlation between the price of crude oil and the price of gasoline. The Organization of Petroleum Exporting Countries (OPEC) is the largest group of crude oil-producing countries in the world. According to Statistica (2018), the average annual OPEC crude oil price has risen steadily from 2016 to 2018 as follows: $40.68 (2016), $52.51 (2017) and $67.33 (as of July 24, 2018). With the significant improvement in the economies of the U.S and other global economies and recent geopolitical events around the world, the price of crude oil is likely to continue to rise in the foreseeable future.
Initial Post Instructions
For the initial post, address the following:
Considering the demand and the supply sides of the crude oil market, provide a comprehensive analysis of domestic and international factors that may be driving the increases in the price of crude oil since 2016.
If the price of crude oil continues to increase, how will the increases affect your buying behavior in the short-term and in the long-term, considering that the demand for most of the products derived from crude oil is typically inelastic?
Explain how changes in the price of gasoline affect your buying behavior of related goods like cars, the use of public transportation, vacations, etc.?
Research shows that the demand for gasoline is inelastic. Suppose the price of gasoline continues to rise into the foreseeable future, as predicted. How would your purchases change in the short-term and in the long-term? Explain.
Suppose you have become very informed and convinced about the harmful effects of carbon emissions on both the environment and public health. Will this newly acquired information change your demand for gasoline or the quantity of gasoline demanded? Explain.
Will the increase in the production of affordable electric cars change your demand or quantity demanded of gasoline? Explain.