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Key Topics
Requirement
Choose a recent article in a newspaper, magazine, or online news site that discusses an event that can be explained with demand and supply analysis and write about the same.
Solution
Summary of the article
According to the article published in the Economic Times (2018), it has been found that the price of crude oil has increased and this is due to the combination of the fundamental and the technical factors. There are certain important factors that are playing an important role in controlling the demand and supply of oil. There has been speculation in the OPEC led production cuts and thus this is considered to be extended till 2019. On the other hand, it has been found that the traders are paying less attention to the increased rig count and thus led to reduction in the output level. The oil prices have also risen due to the Saudi plans for OPEC and the cut in the production level in the Russian countries. This is considered to tighten the market and thus it with lead to massive tax cuts and increased fiscal spending. The currency traders are expected to raise the policy rate by four times and thus it will create more facilities in the market (Economictimes, 2018).
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Demand and supply diagram and with proper analysis
Fig: Demand and supply
Source: Author’s Creation
From the above diagram, it has been found that the demand curve is downward sloping and is represented by D. On the other hand, the supply curve is upward rising and is represented by S. Both the demand and the supply curve intersect at E which is considered to be the equilibrium. Q1 is the equilibrium quantity and P is the equilibrium price Gattorna, 2015).
Explanation of the article with the demand and supply diagram
Fig: Demand and supply
Source: Author’s Creation
From the above diagram, it can be said that the price of oil price increases due to increase in the demand of crude oil and fall in the supply. This increase is said to cause long run increase in the price of crude oil. As OPEC has led production cuts, it has lowered the supply of crude oil and thus this has led the oil exporters to earn higher amount of money through exports. With the increase in the price, the equilibrium is established at E1 with P1 price and Q1 quantity and this process will continue unless the supply matches with the demand to establish the equilibrium at E. This rise in the demand might be due to the increase in the income of the consumers and thus the willingness of the consumers to buy in large quantity. With the development of excess demand and limited supply or hoarding, the price of crude oil increases.
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Place Your OrderShift in the demand and supply with new equilibrium
Fig: Fall in the supply
Source: Gattorna (2015) .
In the above diagram, it can be said that the fall in supply might be due to the effect in the rise of a particular commodity. This will lead to an increase in the total cost and the sellers will be willing to offer smaller proportion at large cost. Thus, it will lead to a shift in the equilibrium price and quantity .
References
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Economictimes. (2018). Economictimes.indiatimes.com. Retrieved 5 April 2018, from https://economictimes.indiatimes.com/markets/commodities/views/crude-oil-prices-likely-to-move-higher-as-volatility-hits-over-3-year-low/articleshow/63491370.cms
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Gattorna, J. (2015). Dynamic supply chains. London: Pearson Education Limited.
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