Application of economic analysis to Shell Oil Analysis of demand and supply affecting Shell Oil Shell oil is currently experiencing weaker margins and fall in its share prices in the market. Weak volumes and refinery volumes have affected the company’s stock…
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The effects of changes in the price and availability of gods and services, which serve as complements to oil have had a great impact on the demand for Shell’s products. A good is as a complement when a rise in its price results to a negative shift in the demand curve for the good of interest. The rise in the maintenance costs has placed tremendous pressure on the demand for oil and affecting the price for the company’s products. The price fall in shares for other industries that heavily rely on oil has had a great impact on demand for oil. The reduced profitability and price wars among companies such as Tesco, J Sainsbury, and Marks Spenser reduces the demand for Shell’s products. Increase in price of engineering tools used in processing and extraction of oil have had a negative impact on the demand for oil (Mason, 2011). Shell can increase the price for its products and services to cover higher overhead costs. A substitute good or service is as a substitute when an increase in its price results into a positive shift in the demand for good or service of interest (Cherunilam, 2007). The increase in the availability of alternative fuel sources such as solar energy has a negative impact on the demand for oil. ...
The demand for Shell’s products is price sensitive (elastic) since a reduction in the price for Shell petrol will automatically result into an increase in demand. In the case of Shell’s products and services, the percentage change in demand is greater than the change in price. The effects of 2008 economic crisis have had negative impacts on the available income to most people in the UK and the rest of the world. This results into decreased availability of disposable income thereby lowering the demand for products and services (Kotler, 2006). An increase in the level of income can result in increased demand for Shell’s products as people start spending more on luxuries such as travelling longer distances using private cars. This will result into increased demand for fuel. Changes in the company’s operations can have remarkable impacts on the supply curve. The increase in cost of oil extraction due to the effects of economic recession is likely to lead to a shift in Shell’s supply curve. The cost of the refinery is a vital factor that causes a shift in the supply curve. The high cost of production has resulted into less supply and consequently fewer profits (Tanne & Raymond, 2010). The increase in the number of the company’s own retail outlets is playing a major role in increasing the company’s global presence. This results into positive shift in the supply curve. Market failures and imperfections An externality is an impact resulting because of an economic activity that affects unrelated third parties (Maidment, 2002). An example of an externality is the recent Shell’s oil spill in Niger Delta, which affected the surrounding environment and affected the health and economic life of the nearby residents. An externality can
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