There have been two major oil spikes in history during 1973 and 1979. It was caused due to the Petroleum Exporting Countries limiting the oil shipments hoping to manipulate the price of world oil. Higher oil prices damaged the economy since it acted as a tax increase. With consumers paying an increased price for oil, people start demanding for higher wages. This causes businesses to lower their profit margins leading to people getting laid off. Although economists say this hasn’t been a problem in the present time. Oil is a portable form of energy used in most purposes, but now it is used less frequently. There are new and better methods of energy production, thus our dependency on oil has decreased immensely. This is the reason why an increase in oil prices will have a lower impact on the economy than if it would have fluctuated a few years ago.
Oil is a scarce resource that people need in order to do daily activities in their lives. Being the only fuel to power cars, it’s in great demand making it something valuable that the Petroleum Exporting Countries can manipulate the price of. The higher the price they cause it to be, the more people get deterred from buying a greater amount of it. As the price increases, the demand decreases. Also, this affects the choices of some people since the more money that they put into purchasing car fuel; the less they have to spend buying food, clothing, and other items. The rising oil prices changes the attitudes of people towards the way they spend there money on other products.
I think that the economists are correct saying that the demand for oil is less now a days; a reason the economy hasn’t been impacted greatly by the rapid increase in oil prices. With technological advancements, substitutes are created that are more energy efficient, reducing the necessity of oil. I can also see this happening as people are reducing their use of technology that requires oil to operate. Another thing happening is people conserving gas, by carpooling or reducing the amount of driving by shopping at nearby groceries. Overall, as long as gas is affordable for people to use for their cars, then the economy should be fine since there is technologically development in reducing our dependency on oil.
http://www.economist.com/finance/economicsfocus/displaystory.cfm?story_id=10130655
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3 comments:
I do not agree with the stance of the economist because the demand is actually increasing. Developing nations like India and China that were predominately powered by coal, are now turning to oil. Western nations are trying to turn to alternatives to relieve our reliance on the volatile market for oil. They have not been successful and consumers are still purchasing gasoline at the pump. Every increase in oil prices increase the price of shipping and transportation. Everything becomes more expensive as oil rises. It will not stop having an impact on our economy until our economy because seperated from its oil addiction.
I disagree with your blog post. Oil is actually being used more frequently I believe, and demand for it is actually rising, not decreasing. Oil is currently an inelastic product, so even though the price of it is increasing, it isn’t an increase big enough that could affect the demand that is currently rising. Although one of the reasons why people are asking for a wage increase is due to transportation expense, which is from high gasoline prices, which comes from high oil prices, our standard of living is also increasing, so it isn’t necessarily the oil price’s fault.
it seems that the article is commenting about an economy's resilience to supply shocks and price increases. one of the factors that has contributed to the resiliency a given countries economy is the availability of substitutes. my interpretation is that the elasticity of demand for oil is changing (more elastic) and emerging economies like china and india are putting adding to the demand of oil and putting pressures on the price of oil.
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