ECO 212 Week 2 LTA Supply and Demand and Price and Elasticity Paper
ECO 212 Week 2 LTA Supply and Demand and Price and Elasticity Paper
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Date Created: 11/16/15
Supply and Demand 1 Supply and Demand and Price Elasticity Team B Names ECO212 University of Phoenix Supply and Demand 2 Supply and Demand and Price Elasticity Our discussion Will tackle the topic about gasoline specifically the supply and demand of gasoline and its different elasticity Crude petroleum oil is refined in terms of quality and one of the products of the refining process applied is gasoline A product such as gasoline is very volatile and it is composed of different chemicals such as ethanol that makes it combustible Which is Why it is used as fuel for cars and machines During the tail end of the 1800 s people started using gasoline to fuel the tractors they used to take care of their farms Up until this time gasoline is still used to make our everyday lives possible In the next part of our discussion the details on the supply and demand of gasoline Will be tackled its everyday uses and how the behavior of these two elements affects the price and value of the product Statistical Information In the United States 51 percent of all of its households utilize the energy acquired from natural gas to keep themselves warm during cold days and any other use of heating The consumption numbers of the United States roughly uses up 22 percent of the volume existing in the country Based on the facts acquired from the US Energy Information Administration EIA the natural gas reserves present in the United States amounts to 245 trillion cubic feet ch The total natural gas reserves of the Whole world reaches 6254 ch so the supply in the US is roughly about 4 of the Whole supply During the period 20072008 natural gas in the United States is utilized through these top 7 categories and they amount to 23 ch Supply and Demand 3 Electric power generation 67 ch 30 Industrial 67 ch 29 Residential 49 ch 21 Commercial 31 ch 14 Lease and plant fuel consumption 13 ch 5 Pipeline and distribution 636 Bcf 3 Vehicle fuel 319 Bcf ltl US Energy Information Administration 2010 para 7 Supply and Demand 4 mum wame VENEZUELA Imam LLAE UK I mum r quot 397 I D PRDDUCTHUN HHGERM MES I UNSUM PTnuN awquot lllgir mm FRANCE mum mam INDM grammar MPMN CHINA USA 39454 mama Pnowtras Thousands of Barrens per nay MAJOR CONSUMERS 393 urn 311 11 39Iv2m i39i r l TIIti ri 7 b p C 0 m 2 O 1 O With the statistics presented to us by the agencies EIA and BP Statistical reVieW of World Energy these are the facts that rise up concerns Americans consume more than 35 percent of the world total consumption of natural gas The natural gas consumption of the United States is more than a third of the Whole consumption being done in the world The consumption numbers of the United States has China at a very far second because it Supply and Demand 5 roughly consumes more than 300 percent of the total consumption of the country Most alarming of all the American population only constitutes five percent of the world s population and consuming over 35 percent on the world s available natural resources Out of all the facts presented this may be the most disturbing The United States consumes 35 percent of the total supply existing in the world a rather large number when we consider that fact that the total number of Americans is only 5 percent of the total human population The use of oil as our primary source of energy is because of the fact that it delivers more energy and power when compared to other natural resources and substitutes for it tends to be more expensive or it does not give more energy or power The fact that I have stated will lead us to raise some questions and try to find some answers for it How does this dictate the price behavior of the product How does this cause the shifting of the supply and demand curve of the product With the shifting of the supply and demand how will the price behave How much is the quantity supplied affected How is market equilibrium achieved Do we really need natural gas or is it consumed because countries have the luxury to consume it Are there any other substitutes for gasoline if so what are they With the identification of the possible alternativessubstitutes how will these in uence the price of gasoline Causes for Shifts in Supply and Demand In this next part we shall discuss the reason behind the shifting of the supply and demand curve of gasoline The first reason is the price behavior of the product that affects the demand for the product This is because the law of demand states that when price Supply and Demand 6 behavior indicates an increase product demand would lessen and when price behavior indicates a decrease it would mean that the demand for gasoline would go in the opposite direction and rise up Once the price of a product increases it means that there is more leverage to produce more and sales to also go up which will lead to a surplus while the lowering of price will indicate a completely opposite scenario When the substitute goods for the product start to lower its price the product will experience a loss of demand but once the substitute goods will increase its prices the product will experience a rise in demand We may also take the different seasons as a cause for the changes in pricing behavior of gasoline and it demand When the temperatures are cold like winter consumers prefer not to travel and stay in their shelters and this causes the prices to drop When the summer time comes vacations happen and people have the urge to travel and this is why prices go up These are just some of the reasons why there is shift in the demand and supply curve of gasoline Supply and Demand In uence on Price Quantity and Market Equilibrium We use natural gas for heating purposes or as fuel to generate power and there are almost no alternatives to what this resource can do When we take a look at the statistics we have presented earlier thirty percent of the end use for natural gas in the country goes to creating electricity There are periods when the demand for electricity rises and this will cause a shift in the supply and demand curve for the resource which will then raise the price of the resource Once the price increases or decreases it is a sign that supply and demand is being balanced out market equilibrium has also changed Necessity or a Luxury Product Supply and Demand 7 Different people may consider gas as a need or a want which depends on who you ask this question Many of the American consumers would tell you that gas is a need because it has many uses such as fuelling their vehicles or heating their houses during the cold winter nights Most of the American citizens in the country have their own cars because they find it more convenient in going from one location to the next when compared to commuting especially because they have their jobs The upper echelon of citizens of the country treats the utilization of gasoline as a luxury because they have to fuel their private boats or airplanes and their expensive highconsumption vehicles If we didn t have gas as a resource we would still be walking or riding a bicycle to get to our destination thus most Americans would consider gas as a very important resource to have When we use the facts that were stated previously the global view may be quite different from the American view The alarming fact of the over consumption of the United States of natural gas in comparison to the world consumption and they must look at this kind of consumption to be a luxury Are there other natural resources that we may consider to be substitutes for natural gas In the next part of our discussion we will be stating the possible resources that are going to be considered as substitutes Product Substitutes Ethanol An alternative resource that is being used up as a replacement for gas is Ethanol In the United States this chemical is now being mixed with roughly 10 percent of the total gasoline used up by its consumers Kallos 2010 Experts consider this as a viable replacement for gasoline based on different reasons First of all ethanol is gathered from the fermentation process applied on field crops such as corn and sugar Supply and Demand 8 beans which makes it part of the renewable resource category Another reason is that engines that use up gasoline would not need to be reconfigured to make use of ethanol as its fuel making it more convenient for the consumers because they don t have to change anything with their car Furthermore the power or energy given by gasoline can be achieved with ethanol but with a lower volume of consumption Lastly investments operations and projects have already been initiated to produce it in large scales Many farmers have joined in producing the crops needed for fermentation to produce ethanol research has identified plants from where ethanol can be acquired and ethanolgasoline mixes have already commenced Ethanol being a substitute is becoming more and more of a reality at this point in time At this rate and considerably small amount of effort ethanol can be used to replace a substantial amount of the consumed supply of gasoline which will lower the demand for the product One issue identified with ethanol is high production costs After all gas still remains to be the cheapest among all the natural resources Vegetable Oil We may think that using vegetable oil as an alternative fuel to be absurd but history tells us another story because the earliest prototype of a diesel engine was initially planned to use up peanut oil for fuel During these modern times proposals have been considered that moves to utilize vegetable oil as the fuel to power diesel engines Many restaurants have lots of used vegetable oil that they need to dispose of and this can be used as fuel to a modified diesel engine with proper filtration techniques Once recycled vegetable oil is chosen instead of petroleum diesel many benefits can be gained such as environmental health economic and securing the supply of fuel When Supply and Demand 9 vegetable oil is combusted chemicals such as sulfur dioxide which is the chemical that causes acid rain is not emitted Furthermore the abolition of the sulfur dioxide emission is not the only environmental benefit Using recycled vegetable oil as fuel cuts down the carbon dioxide emission by 78 percent which was pointed out to be the reason behind global warming a cut of 48 percent of carbon monoxide emitted very hazardous to human health when inhaled a cut of 48 percent from the small particles that may lead to asthma and an 80 percent cut of the polycyclic aromatic hydrocarbons that causes cancer which is also emitted from the smoke coming from petroleum diesel The benefits and reduction of harmful chemicals in the air we can experience from replacing diesel with recycle vegetable oil can also be added to our reduced need to import oil from other countries which is very expensive The identified issue with the use of recycled vegetable oil as an alternative fuel is the acquisition of the supply because collection of used vegetable oil is hard Kallos 2010 How Product Necessity and Substitutes Affect the Price Elasticity With all the substitutes or alternatives presented in our discussion we cannot see yet the impact these other resources will have on the price elasticity of gasoline Natural gas price behavior is really based upon the movement of the supply and demand curve of its market Even though the list of substitutes and alternatives being studied to replace our need for gas is extensive most of the production is smallscaled when compared to the production of gas This cannot be resolved because of the daunting issue of natural gas still having the lowest production cost However considering gasoline to be whether a need or luxury we cannot deny that it is a portion of our everyday living and that it is Supply and Demand 10 impossible to function without a constant supply of this energy resource During this modern period we have a small list of the resources that can potentially replace natural gas but with the rate technology is advancing this may all change once a great discovery is made Gas in the market continues to experience stability and any significant in ux of its price has not happened during the past few years Fossil fuels still gives us the benefits we require from any resource and no other resource has matched that yet thus every economy still needs this resource to function and grow Supply and Demand 11 References bpcom 2010 Statistical Review of World Energy 2004 Retrieved July 22 2010 from httpWWWbpcomproductlandingdocategoryId6929ampcontentId7044622 Kallos T 2010 Biofuels Contribution of Plants to the World39s Energy Needs Retrieved July 22 2010 from httpWWWtimarascomresearchbiofuelshtml US Energy Information Administration 2010 How much natural gas is consumed used in the US total and by end use Retrieved July 22 2010 from httpWWWeiadoegovaskngfaqsasp
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