Select three from the following list of changes and explain the effect on the price of oil. Also describe what could cause the price to move in the opposite direction.
a. Tax credits are offered for expenditures on home insulation.
b. Another Alaskan pipeline is completed.
c. A ceiling on the price of oil is put into pace.
d. A new, very large deposit of oil is discovered.
e. Buyers in large numbers all of the sudden stop driving large sport utility vehicles.
f. The use of nuclear power suddenly suddenly decreases.
Along with contributing your own answer by Saturday, contribute a thorough, thoughtful response to at least one classmate by Tuesday.
ALSO PLEASE REPLY TO ANOTHER STUDENTS COMMENT BELOW
Demand and Supply of Oil
As with any product, bond or stock, the laws of both demand and supply results in the changes of oil prices. Once supply exceeds demand, prices tend to fall and the vice versa is also true in the case that demand outperforms supply.
- Buyers in large numbers all of the sudden stop driving large sport utility vehicles.
Oil and vehicles are both complementary products. This means that they ought to be used together. Once diverse buyers begin driving large sport cars or in this case huge sport utility automobiles, this means that they would also require to buy more oil for usage. The demand for a single product tends to increase the demand for the other product as well. Therefore, the purchase would augment the demand for oil (Wei, et.al, 2013). Once the demand for oil products go up, the amount that gets supplied will in turn increase. This thus increases oil prices. Lastly, when the buyers for huge sport utility vehicles go down, thee demand tends to decrease the oil prices.
- Tax credits are offered for expenditures on home insulation.
In this case, decrease in demand goes hand in hand with decrease in prices. Increasing enough insulation is among the most cost-efficient home improvements which one could do. The decrease in the demand for home insulation leads to a decrease in prices. First, let us take into account the loss of dead weight. A reduction in the prices as long as home insulation is based upon polyurethane and not oil. Following this, increase in supply results in a reduction in prices (Baumeiste & Kilian 2016).
- A ceiling on the price of oil is put into pace.
In the case that the ceiling gets set below equilibrium, there is expected to be an increase in weight thus a reduction in the loss incurred. On the other hand, there would be no change in the amount of prices or demand.