ME S3 PC Answer
Practice exercise:
Supply, demand and market equilibrium
The World Market for Crude Oil: Is the Era of Cheap Oil
Over?
Written by Daniel Fernández-Kranz*
Last updated April, 2013
* The material used in this exercise comes mainly from the document on the market for crude oil from the Research Department of ‘La Caixa’, September 2008: Oil-thirsty emerging economies.
The Price of oil has experienced a sharp increase since 2000. Many have warned that the era of cheap oil is over and that this can have serious consequences for the rate of economic growth
Real Values are Adjusted for Inflation and development worldwide. The discussion is divided between the optimists and the pessimists. The optimists think that the current situation is the result of non-structural factors, factors that will change in the medium to long term, especially in regards to the supply of oil.
They argue that in the medium to long-term, the supply will be able to respond to increases in demand at prices far below current levels. The pessimists disagree and argue that demand will continue to rise and pressure a rigid supply, with the result of rising prices. In order to have an informed opinion about this issue is important that we understand what have been the causes for the rise of oil prices in past years. Then an exercise needs to be done in which one makes the best possible forecast about the evolution of supply and demand, considering all the information available. The next few pages try to introduce you to the debate about the future of oil energy. These pages contain information and statistical data that describes the situation of the world market for crude oil between 2000 and 2008 Your task is to combine this information with the tools of the basic model of supply and demand as described in chapters 4
& 5 of Mankiw and Taylor’s book (namely, the concepts of supply, demand, price-elasticity in the short and in the long run, movement versus shift of demand and supply and market
Supply, demand and market equilibrium
The World Market for Crude Oil: Is the Era of Cheap Oil
Over?
Written by Daniel Fernández-Kranz*
Last updated April, 2013
* The material used in this exercise comes mainly from the document on the market for crude oil from the Research Department of ‘La Caixa’, September 2008: Oil-thirsty emerging economies.
The Price of oil has experienced a sharp increase since 2000. Many have warned that the era of cheap oil is over and that this can have serious consequences for the rate of economic growth
Real Values are Adjusted for Inflation and development worldwide. The discussion is divided between the optimists and the pessimists. The optimists think that the current situation is the result of non-structural factors, factors that will change in the medium to long term, especially in regards to the supply of oil.
They argue that in the medium to long-term, the supply will be able to respond to increases in demand at prices far below current levels. The pessimists disagree and argue that demand will continue to rise and pressure a rigid supply, with the result of rising prices. In order to have an informed opinion about this issue is important that we understand what have been the causes for the rise of oil prices in past years. Then an exercise needs to be done in which one makes the best possible forecast about the evolution of supply and demand, considering all the information available. The next few pages try to introduce you to the debate about the future of oil energy. These pages contain information and statistical data that describes the situation of the world market for crude oil between 2000 and 2008 Your task is to combine this information with the tools of the basic model of supply and demand as described in chapters 4
& 5 of Mankiw and Taylor’s book (namely, the concepts of supply, demand, price-elasticity in the short and in the long run, movement versus shift of demand and supply and market