BP Oil Spills Essay Example | Topics and Well Written Essays - 1000 words

BP Oil Spills - Essay Example The essay is thus a pure amalgamation of economies in the theoretical and empirical perspectives. It is highly rational to study the microeconomic impact of the oil crisis as the wastage of oil thorough a spill would surely decrease its supply in the world market. A fall in the supply of oil would cause its scarcity in the market and thereby increase its prices. A rise in price of oil would directly increase the cost of transportation and hence all the goods and services produced in the economy. The researcher in the context of the essay would be explaining the microeconomic impact of the oil spill in the economy of United States and the rest of the world. Analysis The three microeconomic analyses that can be figured in the context of the essay are: Theory of Supply The theory of supply states that a raise in the selling price of goods and services in the market increases the supply of it, given all the other factors affecting supply remains constant. Figure 1: Supply Curve Price Sup ply Curve Quantitative Supplied (Authors Creation) The above graph explains a positively sloping supply curve in the market. A shift in the supply curve only occurs when the factors apart from prices changes in the market. An increase in the supply explains an upward shift in the supply curve. ... Figure 2: Shift in Supply Curve Final Supply Curve Price P 2 Initial Supply Curve P1 Quantity Supplied (Source: Authors Creation) The figure 2 above explains the upward shift in supply curve of petroleum in the market. As shown in the above graph the sudden supply shock of oil in the market of petroleum in U.S. would surely cause an upward shift in the supply curve. As stated in the above figure the upward shift in the supply curve would be forcing the supplies supply a lower quantity at a higher price. Thus, given the market demand for petroleum the decreased in supply have indeed increased the price of oil in the market for U.S. from say P1 to P2 (McEachern, 2012). Theory of Demand The low of demand in economics states that the rise in price for a commodity or a service is inversely related to its quantity demanded, assuming that all other factors affecting demand are constant (Ceteris Paribus). When a consumer creates a demand in the market, it is a want that is backed by proper p urchasing power. The want has the power to satisfy the utility of the consumers. Figure 3: Demand Curve Price Quantity Demanded (Source: Authors Creation) The figure 3 stated above is of a negatively sloping demand curve. However the degree of responsiveness of the rate of change of quantity demanded with respect to the rate of change of price, depends on the elasticity of demand for a product. It is true the demand price elasticity for petroleum in the market is moderately elastic in nature as petroleum is not a necessity. When, the prices of basic necessities of increases then consumers are forced to pay higher (Ross, 1979). Figure 4: Moderately Elastic Demand Curve (Source: Nechyba, 2011) The above figure 4 is of a moderately elastic demand curve, where