Oil price reaches record high of $100 barrel Essay

Oil price reaches record high of $100 barrel - Essay Example The discussion then shifts to US perspective where in the price of the oil is determined to a great extent by the Americans. Nearly 25% of the world oil supplies are consumed by USA. The article concludes by stating that the price of the crude oil may go up to $200 per barrel in the coming years. The demand in the output markets are determined by the households from the above diagram. A household's decision about what quantity of a particular product depends upon the following factors and all the factors are getting affected due to the price hike. Other products include substitutes (Solar power, Electric Battery, Wind power etc.) and complementary goods (Cars and Automobiles etc.). Due to this price rise, the prices of these substitutes and complementary goods will remain affected. Substitutes, a favourable condition exists and for complementary goods, the condition worsens. As per this graph, the pricing of oil is having an impact on producers and consumers. The producers/suppliers price the oil as per the law of supply in early 2000's where the oil market was a buyers market. The basis of pricing was cost of production of the least efficient marginal supplier. As per this graph, the pricing of oil is having an impact on producers and consumers in the perspective of price hike. ... 4. The Prices of other products available in the market Other products include substitutes (Solar power, Electric Battery, Wind power etc.) and complementary goods (Cars and Automobiles etc.). Due to this price rise, the prices of these substitutes and complementary goods will remain affected. Substitutes, a favourable condition exists and for complementary goods, the condition worsens. 5. The households' tastes and preferences will change. 6. The household's expectations about future income, wealth and prices also will change. Ultimately, the law of demand - "As price rises, quantity demanded decreases and vice versa" will play a crucial role in decision making by the household's. Graphical Analysis World Price 80 10 Quantity (Barrels) Oil Pricing before Price hike As per this graph, the pricing of oil is having an impact on producers and consumers. The producers/suppliers price the oil as per the law of supply in early 2000's where the oil market was a buyers market. The basis of pricing was cost of production of the least efficient marginal supplier. World Price 100 15 Quantity (Barrels) Oil Pricing after Price hike As per this graph, the pricing of oil is having an impact on producers and consumers in the perspective of price hike. The producers/suppliers price the oil on three major components where the oil market is now a sellers market. The basis of pricing is based on three components like Value of equivalent human energy, Sustainable energy creation costs, Affordability of the least