Economic Course Work Essay

The market demand (red line) for oil is highly inelastic, and a large change in price only has a small impact on demand for oil. In essence, you will not drive twice as fast because oil is cheaper, nor can you easily switch from using one type of fuel to another(petrol to diesel) just because its price has changed to be cheaper. The supply of oil is relatively inelastic. This is because investment in the production facilities leads to an increase in supply, but the cost of pumping out the oil is relatively the same (Hillier, 2005). It will cost an oil production facility roughly the same amount to produce at half or full capacity. Maintenance and repairs will only be done if the price of oil is high. In essence, we can say that a small change in the demand and supply curve causes a larger change in the clearing price of oil in Russia. As the cost if oil goes up, the Bus fares will increase as transporters will try to recover the remaining cost from the passenger, thus reducing the demand for buses. This in turn will lead to passengers demanding more of the train services which are not affected by the rise in oil price, thus the shift in the demand curve to the right. Indicating a demand for trains. During world the demand for oil was low, thus the downward shift of the demand curve from D1 to D2. This was a result of consumers looking for alternative sources of fuel energy, since the price for oil was high. Also during the recess, due to the recession, the price of oil went up, thus the upward shift of the supply curve from S1 to S2. The high prices led to more production, thus more supply to capitalize on the prevailing high market prices of oil. iv) Use a demand and supply diagram to show what happens to oil prices when the UK adopts energy efficiency measures and invests in wind and solar energy There will be less demand for oil from the British as they will look for alternative means for energy, thus the downward shift of the demand curve from D1 to D2. Thus further development in alternative energy resources means that there is spread of technology thus the equivalent point shifts to the left. v) What happens to oil prices if high economic growth continues in India and China. India and china are following the traditional economic growth path which requires huge oil production and use. Since the national resources are limited, large scale of imports are necessary. Larger demands, higher price, higher expectation to prices attracts speculators to buy more of the oil, which creates the bubble, higher prices of oil due to increased demand (Copeland et al, 2005). 2. Use demand and supply analysis consider what factors on the demand side and which on the supply side will influence oil prices over the next few years? (50 marks) Prospects in the world economy. The world populations is increasing daily, signaling an increase in the demand for oil to meet some of the basic life energy needs . It is estimated that the population of India and China will grow by 8. 4% and 10% respectively. This alone is a big market (demand) for oil (Market Avenue, 2008). Thus this will affect the price of oil, as the demand will increase, thus a rise in the price of oil. Technological development. The world oil supply will improve with new technologies being propagated everyday to ensure more but efficient production and distribution of oil to the markets. This will lead to more efficient and environmentally friendly oil facilities that will increase the supply of oil at a global level (Market Avenue, 2008). As a result, the price of oil will go up in proportion to the investments put in place to do the renovations and maintenances of the oil production facilities. Global economic political situation as with Iran nuclear issue, in as much as Iran has high reserves oil and gas, it is has a nuclear development programme that is looking at using nuclear technology as an alternative to oil and gas. This has prompted political debates impasse, and sanctions as regards the future of energy resources in the world. Reports by Market Avenue (2008) shows that this affects the price of oil in the sense that Iran has the second largest oil reservoir, next to Saudi Arabia, and thus have a greater control over how their international relations plays out with the world super powers and the OPEC to regulate the supply and price of oil. According to Biswajit et al (2007), alternatives to oil, there are increasing alternatives to oil as a source of energy. Many other alternatives like, solar, propane, nuclear energy, bio diesel, hydrogen, battery and ethanol. All these are alternatives to oil that have been proven to work. Even though their use is still small scale compared to oil, they are emerging as good alternatives oil use. This affects the future of oil use globally as they tend to be more environmentally friendly and cheaper than oil. 3. Describe the structure of the world motor car industry (25 marks) The first producer of a petrol engine driven car was Karl Benz, 1885 Mannheim Germany. Over the years many inventions and different models of cars have come. These include brand names such as Toyota, Hyundai, Range Rovers, Mercedes Benz, Nissan just to mention a few. Globally there are many producers of cars. For ease of reference they have been ranked by country. In the top ten we have China, Japan, USA, Germany, South Korea, Brazil, India, Spain, France, and Mexico respectively. The top ten brand names include Toyota, General Motors, Volkswagen, Ford, Hyundai, PSA, Honda, Nissan, Fiat and Suzuki. This is relation to the number if volumes of vehicles the produced in 2009. Depending on the regions, various cars manufacturers have a specific share in the markets in which they operate in. Example is that Thailand is today, already the second largest globally, pick-up truck market after the U. S. and is ASEAN’s largest automotive market and assembler. In her report, Global Automobile Industry: Changing with Times , Chithra Gopal R. S. , M. Sc (Agri), says that in Thailand today all leading Japanese car producers as well as BMW, Mercedes Benz, General Motors, Ford, Volvo and Peugeot assemble cars along with their legions of suppliers. The country has become the main production base for auto- mobile exports in South East Asia. One of the biggest foreign producers located in Thailand is Toyota with a production totaling more than 300,000 vehicles a year and the number is having an upward trend. General Motors (GM), although a much smaller player in Thailand than Toyota, is also increasing production. The other big auto companies located in Thailand are Isuzu, Mitsubishi, Nissan, Auto Alliance, Honda etc. In recent years, BMW and Daimler Chrysler (Mercedes-Benz) have also increased their investments to gain complete control on local manufacturing and marketing operations, indicating that the auto mobile industry in Thailand has the structure of perfect competition (Biswajit et al. 2007). References Biswajit, N. , Saikat, B. &Rittwik, C. (2007). Asia-Pacific Research and Training Network on Trade Working Paper Series, No. 37, July 2007. Retrieved on 21 August, 2010. From: http://www. unescap. org/tid/artnet/pub/wp3707. pdf. Case, K. & Fair, R. (1999). Principles of Economics, 5th Ed. New York: Prentice-Hall. Copeland, A. , Wendy, D. & Hall, G. (2005). Prices, Production and Inventories, Over The Automotive Model Year, Working Paper 11257, NBER Hillier, B. (2005). The Macroeconomic Debate. Oxford: Blackwell, pp. 7-85. Market Avenue (2008). Major Factors Affecting World Oil Market in 2008. Retrieved on 21 August, 2010. From: (http://www. marketavenue. cn/upload/articles/ARTICLES_1422. htm Parkin, M. & Bade, R. (1982). Modern Macroeconomics. Indiana University press Philip, A & Fischer, S. 1980. Rational Expectations and Economic Policy. Chicago: University of Chicago Press http://www. tradingtoday. com/26-oil-supply-demand, http://www. eco-action. org/dt/oilfut. html).