Week 3 Research Assignment Essay

Submitted By jreyes17
Words: 1027
Pages: 5

Week 3 Research Assignment In the past three weeks, we’ve discovered, there are several factors that influence economic systems. We learned about how the supply and demand of certain products or goods are influenced by outside forces like natural disasters, taxes/fees imposed by the government and conflicts overseas. When there is a high demand of a product and a limited amount of supply the price for these product tend to rise. This is illustrated by Graph A of the Supply and Demand Guide which shows at upward shift in the demand curve. This means, consumers are will to pay more for limited quantities of goods at an increased price (Mankiw, 2015). When there is an event such as a hurricane in the Gulf of Mexico, which forces oil refineries to shut-down, prices tend to spike. When this happens, consumers decrease their spending until the price is more becomes more affordable. The decrease in demand shifts the demand curve to the left which shows the decreased willingness to pay the higher price of goods. In response, suppliers are forced to lower the price by decreasing quantity supplied. This results in a new price equilibrium as illustrated in Graph B (Mankiw, 2015). This back and forth movement in the demand curve happens daily when we fuel our vehicles. As fuel prices rise, consumers tend to find way to cut-down the use of their vehicles or find alternative means of transportation. If consumers live in a city that offers mass transit, consumers may start taking mass transit until the prices are affordable again. Another option is to carpool, invest in a more fuel efficient vehicle, or ride a bicycle for short trip. What causes prices to fluctuate at the gas pumps, sometimes at a daily rate? Several factors contribute to this occurrence. One factor is civil unrest in countries that produce oil. A recent article talked about the conflict between Saudi Arabia and Yemen. Although Yemen is a small oil producing country when compared to Saudi Arabia, tensions between the two countries may have influenced the spike in the price of oil. Analysts believe the long-term market impact of conflicts involving oil producing countries will affect the prices in the future. (Reed, 2015). Another factor that people don’t realize is the ever-increasing demand for fuel from countries like China and India. As we go about our routine, people in general, do not understand how much it cost oil companies to produce a gallon of fuel. They don’t understand that one day the price of gas is $2.15 per gallon, then the next day it jumps to $2.50 per gallon. Most people blame the oil companies for raising the prices just to make a bigger profit. If you look at the news, all you hear about are the record profit oil companies are making. The biased media fails to mention the overall cost to the oil companies - exploration, refining process, improvement in technology, transportation, manpower, and taxes. What does it cost to refine oil into gasoline? Although oil companies are reporting record total profits, their profit margin is actually falling (Calore, n.d.). Refining crude oil produces a wide variety of products from gasoline, kerosene, jet fuel, home-heating fuel, asphalt, and road oils. In addition, crude oil contributes to the manufacturing of petrochemical products such as plastics, polyurethane, and other petroleum-based products (Calore, n.d.). The refining process is similar to distilling moonshine. The crude oil is heated and boiled off at different temperatures. As the temperature rise, different products are extracted at different temperatures. For example, at 360 degrees F, products such as butane, naphtha, and low octane gasoline are produced. As the temperature rise to 650 degrees F, jet fuel, kerosene, home heating fuel, and diesel fuel are extracted. At more sophisticated refineries that can heat the crude at temperatures exceeding 1000 degrees F, lighter products and higher octane gasoline is