Oil Prices: Demand and Supply

Case Readings:

Anderson, R and J. Buol (2005). “What is Driving Oil Prices.” The Regional Economist. The Federal Reserve Bank of St. Louis. Retrieved on September 1, 2011 from: http://www.stlouisfed.org/publications/re/2005/a/pages/oil_prices.cfm

Using the case assignment readings, answer the following questions in 4-5 page essay.

1. How do changes in supply and demand effect oil prices?

2. Which two countries are the largest consumers of petroleum products?

3. Explain what happens to price and quantity of oil when the following events occur:

a. The price of SUVs falls.

b. The government approves more drilling in Alaska.

For each event, you must specify how it effects either demand, quantity demanded, supply, or quantity demanded. It is also important to demonstrate how the change will affect the market demand or supply curve. Also, be sure to state any assumption you are making regarding the relationship of the event and oil.

e.g. The increasing use of plastics to produce a wide range of products.

Assume that petroleum products are used as a factor of production. This will increase the demand of oil and shift the demand curve to the right. This will cause the price and quantity of oil to increase.

4. If you consider a product like gasoline, would you favor price control so that you pay less than the current price at the pump, $1.00 less for example. Why or why not? (Be sure to do some of your own research to support your answer. It might be useful to review what happened during the 1973 oilcrisis). You can review the optional resource:

Energy Information Administration. 25th Anniversary of the 1973 Oil Embargo. Retrieved September 1, 2011 from: click here

Case Assignment Expectations:

Use concepts from the modular background readings as well as any good quality resources you can find from the cyberlibrary or other internet search engines. Pleas be sure to cite all sources within the text and provide a reference list at the end of the paper