This combined with the current fuel climate and oil prices result in a lot of demand for bio-fuels which is why 20% of American grown corn goes on bio-fuels. Like a rise in income this also shifts the demand curve to the right and results in demand pull inflation. This can be illustrated by the same diagram and the same shift from P1 to P2. In conclusion the prices of grains such as corn and wheat have risen as a result of multiple demand side factors. In 2007 was when the rise in disposable incomes in China and the rise in demand for bio-fuels saw significant rises which in combination caused a large price rise as a result of demand pull inflation.
Fossil fuel contributes too many products, the biggest being gasoline. With more people today driving an automobile we are using more and more gasoline. In the past seven years the prices of gas and oil have skyrocketed. Oil went from a very low price a barrel to $99.03 a barrel (As of today). As a person whose family gets royalty rights for oil and natural gas it is a blessing.
2. Should they try to get a price higher than $40 per ton to improve profits? Why, or why not? Yes, they should try to get a price higher than $40 per ton to maximize the profit. As the variable cost is too high as we increase the production.
First of all, the government would be very pleased with the increase in the increase in taxes of cigarettes since the more people pay, the more taxes the government will collect. That way, the government will have a much higher income as a result of this price rise. On the other hand, consumers will not be pleased by this price rise since the will have to pay much more to buy the product, which means less of their total income. So overall, in the short-run, the tax rise is a very good thing whereas the total income for the government increases, allowing the government to improve the entire well being of the country and provide more public goods and owners make a higher profit. However in the long-run, this price raise is not enough to make people quit smoking so since cigarettes are a demerit good, it will have a negative effect on the environment and it will increase the number of health issues from second hand smoke, not to mention the high unemployment rate and less taxes for the government.
One effect of hydraulic fracturing on economics is that it creates a huge increase in profit for natural gas sellers and drillers by opening up the opportunity to tap so much more natural gas than was available before. “North America has approximately 4.2 quadrillion (4,244 trillion) cubic feet of recoverable natural gas that would supply 175 years’ worth of natural gas at current consumption rates.” (Earthworks, N. Loris) Another way it affects the economy is that 10,000 jobs could be created by each drilling site that is opened. (N. Loris) However, a negative effect it has is that it costs about 2 billion dollars for each plant and extra for maintenance and disposal. One last affect hydrofracking has on the economy is it lowers natural gas prices by up to 15 dollars a gallon.
Driving cars, heating buildings, producing electricity, people all need gas. Therefore, gas is directly related to people’s normal life and the global economy. Recently, the Middle East political and economic situation has been deteriorating which has led to the continuous hikes of gas prices. The oil price, the volatile situation in Libya and rumblings in Saudi Arabia are being blamed for spiking gas prices. The political turmoil sweeping across countries like Egypt, Libya, Bahrain, and Tunisia have resulted in rising oil and gasoline prices, increased inflation, devalued currencies, and diminishing stock values.
Conversely, the United States’ output and employment would suffer and lead to larger increases in interest rates over the long term (Page & Reichling, 2012). Higher interest rates would prove extremely detrimental to the economy. Not only would it stifle growth in general, but it would also increase the amount of money the government would have to spend to service its debt. This would hamper government spending that produces a benefit to the economy. Sequestration offers limited austerity now and could reduce the need for more drastic, Greecelike austerity measures in the
However, pensioners will be hit hard because the extra income they earn from saving will have dramatically reduced, making them worse off. On the other hand, savers may leave the pound for better interest rates in other countries (hot money), causing a fall in the demand for the pound. As a result the value of the pound will fall, making exports cheaper and there will be an injection of net exports. In conclusion, the impact of loose monetary policy will be beneficial to the economy because extra consumption and investment will cause AD to increase which will increase economic growth. However, it takes a long time for changes in interest rates to feed through to consumption and investment and by then the economy may have gotten worse.
(d) Oil companies anticipate an upsurge in demand for oil in electricity generation. (e) The demand for petrol rises. (f) New technology decreases the costs of oil refining. (a) Shift right. (b) Movement up along (as a result of a rise in price).
He explains that as the global need for oil grows it puts more money in the pockets of the oil producing countries. He has a great “law” in this chapter that says that as oil prices increases the amount of freedom decreases. I found this very interesting just because the measure of freedom can be very subjective and it depends on what a person’s view of freedom is. He also tries to say that the increase of money in these countries fuels more terrorism. Which is another subjective idea because any country becomes richer would almost everything increase?