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extra credit - Jansen Guim Econ 206 Section AM3WA Extra...

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Jansen Guim Econ 206 Section AM3WA December 10, 2007 Extra Credit What is the impact of the oil price in the US economy? Due to the industrial revolution the supply of energy is very important in our society . With that said, fossil fuels are of great importance because they can be burnt and create significant amounts of energy . Oil is a form of fossil fuel which we have been highly dependant on it . The oil prices and its’ supply and demand are some of the main concerns in our economy . Oil prices continue to set records as it rise higher and higher. It is not good news for customers who have to pay more on it . According to many analyst and economist this situation may get worse before it gets back to normal . The Organization of Petrolium Exporting Countries, known as OPEC, is the main producer . These countries controlled about three-quarters of the worlds oil reserve. They prepare to add or subtract production to balance demand . Within the OPEC countries, they raise the price of its product by reducing in quantity produced and OPEC tries to set production levels for each of the member countries . Moreover, the oil market is an oligopoly where a small number of companies own or control the production of a particular good or provision of services within a market . In this form, the producers produce a quantity of output greater than the level produced by monopoly and less than
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the level produced by competition . The oligopoly price is less than the monopoly price but greater than the competitive price . Therefore, supply and demand theory can be applied in oligopoly form of market . With the unexpected increase in demand of oil consumption, OPEC had increased its collective production to 27 .5 million barrels a day by March 2005 and prepared to increase 500,000 barrels a day of spare capacity . It required additional refining capacity, of which there is a shortage . It will cost the producers large amount on the facilities to
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extra credit - Jansen Guim Econ 206 Section AM3WA Extra...

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