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Economics 202 - Essay Example

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This article explains how the price of the oil has fluctuated and what have been the reasons behind its fluctuating price.
Just recently, it was felt that due to civil war in the…
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Economics 202
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[Teachers The Price Of Fear – An article of demand and supply The article “The price of fear” was featured in the May 3rd print edition of The Economist. This article explains how the price of the oil has fluctuated and what have been the reasons behind its fluctuating price.
Just recently, it was felt that due to civil war in the country, the world might have to do without Libyas oil exports, which is the thirteenth largest oil exporter in the world. This sent shock waves throughout and oil prices rose by $5 to stand at $120 (Oil markets and Arab unrest 2011). It was the expectations of a fall in demand that artificially beefed up demand and therefore the prices rose.
Further this paper discusses how the feeling of a civil war was felt in Bahrain and Saudi Arabia due to the possibility of revolts in the two countries. This paper tells us that Saudi have so much oil that it could inject it in the economy at anytime to reduce the global oil price. This concept is of basic demand and supply and we can understand here that the price would fall since as more levels of oil would be supplied then demanded, equilibrium would then be reach at a subsequently low price by the interaction of the demand and the supply curve.
Further on this article discusses how customers adjust the rising oil prices. Since oil is an essential commodity, its demand therefore is inelastic. Consequently as prices go up, producers of oil raise the price and make more profits and the customers would still buy it since they have no option but to use it, it being a necessity for life. This makes it clear that goods which have an inelastic demand, their prices can easily be raised and the producer make a decent amount of money on it.
Works Cited
"Oil Markets and Arab Unrest: the Price of Fear." Economist London Economist Newspaper Limited. (2011): 31-34. Print. Read More
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