ECON Video #3

ECON Video #3 - Michael Blasius Video#3 Supply and Demand...

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Michael Blasius 9/27/07 Video #3 Supply and Demand: What Sets the Price? In the past, water has been of very low cost. In 1975, a drawn out drought caused fires and most importantly, water shortages. Soon, the rationing of water began in California. Because of this low supply, the cost of water went up drastically . In order to prevent the same situation, expensive legislation was passed to build up water reserves in California. The law of diminishing marginal utility explains how we get more satisfaction when a utility is in low supply than when it is high. This is because we restrict our use of a product which is high in price and when we do buy it, we put it to better use . When the supply of that product goes back up, normal usage resumes and people do not preserve their goods as much. The oil crisis of the 1970’s was caused by the growing inflation which effectively reduced the price of oil to the point where it was no longer profitable to drill for more oil . OPEC held out from the US and caused the nation to go out on its own to drill for oil. Because of the
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This note was uploaded on 04/20/2008 for the course ECO 215 taught by Professor Mirimiani during the Spring '08 term at Bryant.

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ECON Video #3 - Michael Blasius Video#3 Supply and Demand...

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