http://business.financialpost.com/2011/04/04/oil-finds-new-floor-at-100/
Summary:
This article is about the rising prices in oil. OPEC, the Organization of the Petroleum Countries first stated that the original "fair price" of a barrel of oil for both producers and consumers was $75 but now, it has increased to $100 a barrel. The increased price was supported due to the rising production costs and the higher budgetary requirements. This increase was largely supported by Saudi Arabia, who is also the leading nation in OPEC. Unrest across the Middle East means that Saudi Arabia’s attention is no longer focused on moderating the oil prices.
Connections:
This article is related to Chapter 6 because it involves aggregate demand. Aggregate demand is the total demand for goods and services in the economy. The factor of aggregate demand in this article is price. The price for one barrel of oil has increased from $75 to $100. This increase in price can really affect many people. Since the price of oil has increased, the price of food will most likely increase as well due to transportation costs which would ultimately, involve oil. The increase in price will affect people worldwide.
Reflections:
I feel as though the components of aggregate demand affect everyone. With the oil prices rising from $75 a barrel to $100, many people will ultimately decide to take public transport. Although our country is not in a recession, we are still recovering from the high rates of unemployment and underemployment. Perhaps Saudi Arabia is currently too distracted with the Libyan rebellions to consider that many people will choose other alternatives of transportation. This would cause a decrease in oil consumption but it will not really affect it too much because many people will still purchase oil because it is an inelastic good to some.
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ReplyDeleteI totally agree on this statement. The rising oil prices is a great example of aggregate demand. Modern day, almost all means of transportation requires oil, oil is required by almost every middle class citizen in our country. With the increase of the oil prices it will affect the cost of food, which is connected to the means of transporting the food, which in return probably uses oil. In my opinion, as long as there is going to be a high demand in oil, the prices are most unlikely to deflate.
ReplyDeleteThe aggregate demand would be indicated to decrease due to the crude oil prices jumping from $75 to $100. It should affect the way we perceive things with crude oil shooting its way back up to its highs prior to the recession.
ReplyDeleteHowever it seems the case is that the aggregate demand would stay the same, largely due to crude oil prices not largely affecting our pockets at the pumps, as the increase isn't significant enough for people to start looking at alternative transportation. It's just too difficult to change our habits of using crude oil. However for us consumers to be hit elsewhere is soon inevitable. Transportation will cost more on a large scale, in effect causing corporations to charge a higher transportation fee to their customers (wholesalers/businesses), eventually passing down the costs to the front-line consumers to help cover up the ever increasing expenses.
- Tim
Your analysis and connection between aggregate demand and increasing oil prices are excellent. Many products are directly or indirectly linked to oil prices. For example, fuel is needed to transport goods from the factories to the shops. An increased price on fuel would be passed on to the consumers.
ReplyDeleteAs an inelastic product, oil is still going to still be of high demanded by consumers. As long as there is a high demand in oil, the prices are likely to continue to increase. As the prices of oil increases, oil will start to transition from an inelastic to elastic product, as the cost of gas will get people to take the bus or switch to hybrid cars.
This is a great example of "price" in aggregate demand. Today, it can be said that oil is no longer just a "want" but more of a "need" in our modern society. Just about anyone and everyone in our society requires some form of oil usage - ranging from cars, public transportation, to lawnmowers. Taking that into account, it can be seen from previous examples that although gas and oil prices may continue to rise above what we'd imagine, the demand for it remains high. Because of this, I believe we have yet to know what "high" is in high gas prices.
ReplyDeleteI agree with what you have said about the oil prices rising and aggregate demand. In today's society, just about everyone requires some form of oil usage. As you stated above, transportation requires oil and with food being transported before it gets sold, food prices will ultimately go up. This increase in oil price will probably not go down because oil is quite inelastic.
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