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Economics is the study of how human beings their wants and desires, given the decision making mechanisms, social customs and political realities of the society. It is very interesting to see the different statistical results of each countries economic condition. This analysis is based on an article indicating the increase of prices on crude oil in the United States as of November 000.
Oil prices in the United States have great impact on the economy. A major increase in oil prices reflects that crude oil is an important source of energy for industrial countries. While petroleum prices are high and the U.S. economic activity appears to be decreasing, a projected growth and moderate inflation is forecasted for the next two years. Unless the prices of other goods and services decrease then the aggregate price level will rise. OPEC (Organization of Petroleum Exporting Countries) is one of the main reasons why petroleum prices exceed the supply/demand curve. They attempt to keep prices above their competitive levels by adjusting crude oil supplies. Within the United States oil is traded internally and its price does not depend on domestic supply and demand but also on foreign supply.
The supply of oil tends to be fixed in the short term, since it takes time to explore for new reserves or tap proven reserves. In an economists view, the supply curve for oil is inelastic in the short run. Accordingly an increase/decrease in the demand for oil will engender a disproportionate response on the price side. Real GDP grew at about 4.5% annual rate through the first three quarters of 18 and inflation averaged about 1.5%. One reason for increase is that the economy's production frontier has been shifting outward from the origin. The ability to produce proportionately more output,
accordingly, has enabled firms to keep labor cost in check. At a time when margins are being squeezed by higher labor costs and more recently by the sharp increase in energy prices, firm have been able to post significant profits which have accordingly boosted equity prices and engendered other economy wide benefits. (http//stlouisfed.org)
Custom Essays on Supply & Demand
Since there is a great demand of energy use in the United States, the supply curve has shifted where by there is a need for mass production rather than outsourcing. America's oil supply is not local and so suggestions have been made to go deep sea drilling in order to locate oil on our soil to match the demands and therefore decreasing the price by a great percentage and thus reducing inflation. A way of seeing how energy efficiency affects the economic performance is by considering energy usage by state. Nevertheless, we need energy to survive and if the demand is continuously growing then producers will have to match the supply curve for petroleum. Because pricing is a now a large function of market forces political or economic developments can sometime increase the wide spread oil prices. However, states whose industries have experienced below average increases in energy have had slower employment growth. Despite all the increases the United States economy have managed to cope with the latest oil increase.
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