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Module 2micro Exercises

This document discusses the concepts of supply and demand and elasticity in relation to the global oil market. It explains that the law of demand states that as price increases, quantity demanded decreases, and the law of supply states that as price increases, quantity supplied also increases. Currently, oil prices are low due to weak demand and high supply. While OPEC countries have not cut production to reduce supply, demand for oil has remained low. The document also discusses elasticity, noting that gasoline demand is inelastic, meaning small changes in price do not significantly impact quantity demanded, as there are few substitutes and consumers still need gasoline. In contrast, choices among gas station providers makes gas station demand more elastic.

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Alzan Zander
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35 views

Module 2micro Exercises

This document discusses the concepts of supply and demand and elasticity in relation to the global oil market. It explains that the law of demand states that as price increases, quantity demanded decreases, and the law of supply states that as price increases, quantity supplied also increases. Currently, oil prices are low due to weak demand and high supply. While OPEC countries have not cut production to reduce supply, demand for oil has remained low. The document also discusses elasticity, noting that gasoline demand is inelastic, meaning small changes in price do not significantly impact quantity demanded, as there are few substitutes and consumers still need gasoline. In contrast, choices among gas station providers makes gas station demand more elastic.

Uploaded by

Alzan Zander
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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MICROECONOMICS

SIMPLIFIED

Edilberto B. Viray, Jr. MAE


Ma. Jesusa Avila – Bato, MAE
Lucky Raymundo M. Malveda, MAE
ANVIL PUBLISHING INC., 2016
CHAPTER II: The Basic Analysis of Supply and
Demand
CHAPTER II: The Basic Analysis of Supply and
Demand
CHAPTER II: The Basic Analysis of Supply and
Demand
CHAPTER II: The Basic Analysis of Supply and
Demand
CHAPTER II: The Basic Analysis of Supply and
Demand
CHAPTER II: The Basic Analysis of Supply and
Demand
CASE STUDY: Microeconomics
Demand and Supply – Oil

The law of demand states that, if all other factors remain equal, the
higher the price of a good, the less people will demand that good. In other
words, the higher the price, the lower the quantity demanded. Like the law
of demand, the law of supply demonstrates the quantities that will be sold at
a certain price.

Today, the price for crude oil and gas are expected to go down
ever more because of the weak growth for demand and bulging supply. The
large supply of crude oil and gas has helped lower its prices to all time lows
strengthened by a low demand for it. OPEC (Organization of Petroleum
Exporting Countries) countries have refused to cut production which could
cut the amount of supply of oil but instead has pushed for higher levels of
production which would help lower the already low prices of oil.
CHAPTER II: The Basic Analysis of Supply and
Demand

According to the IEA (International Energy Agency), world oil supply for the
1st Quarter of 2015 till 1st quarter of 2016 was relatively higher than the
world oil demand for the same quarters. Back in the 3rd quarter of 2013,
the world oil demand was higher than the world oil supply which was why
prices for that particular period of time were higher.

What are your thoughts?

Sources:
https://www.iea.org/oilmarketreport/omrpublic/
www.bankrate.com/finance/economics/reasons-gasoline-prices-drop-
1.aspx
CHAPTER III: The Concept of
Elasticity
CHAPTER III: The Concept of
Elasticity
CHAPTER III: The Concept of
Elasticity
CASE STUDY: Microeconomics
Elasticity: Demand and Supply

If production is elastic, we assume that if the price of a product


goes up, or if a shortage of the product develops, then competitors are able
to add new capacity to increase the availability of that product. If production
is inelastic, then higher prices and/or shortages do not bring forth new
capacity because suppliers are unwilling, or unable, to increase production.

If demand is elastic, it simply means that consumers will buy more of a


product when the price comes down. If demand is inelastic, changes in price
initially do very little to change consumer buying habits.
CHAPTER III: The Concept of
Elasticity
In the case of the global gas market, gasoline is considered as an inelastic
demand. As gasoline prices increases, the quantity demanded doesn't
decrease all that much. This is because there are very few good substitutes
for gasoline and consumers are still willing to buy it even at relatively high
prices. An example of an elastic demand is a Gas station, gas itself may be
inelastic but the gas stations who serves the consumers directly is elastic
because there are many gas stations (Shell, Petron, and Total) that people
could buy from.

What are your thoughts?

Sources:
http://www.resilience.org/stories/2007-03-22/elasticity-oil-production-and-
consumption
http://www.forbes.com/sites/tomkonrad/2012/01/26/the-end-of-elastic-
oil/#13bc5fa668fd

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