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Oil Prices: What’s Behind The Drop? Simple Economics

Question

Select a news article dated within the previous two months, and analyzes the issue using the economic concepts and theory learned in this class. Develop a 3 to 5 page double-spaced paper that advocates a position on this issue. Title page, appendices and bibliography are not to be counted in the page total for the narrative portion of the paper. 

Your paper should begin with a concise summary paragraph that

  1. States the problem and 
  2. Summarizes your position.

 The remainder of the paper should support and explain your position. The paper should include at least one graph developed in our course and define all economic concepts used to build your argument. Possible graphs/concepts/theories to use in your paper include:

  1. Taxes, consumer or producer surplus, and welfare
  2. Demand, supply, and equilibrium price of a particular product or products
  3. Total benefit and cost curves
  4. Production function and isocost curves
  5. Long-run and short-run costs
  6. Indifference curves, indifference curves and budget line
  7. Price elasticities of supply and demand, or income elasticity, on a particular product or products
  8. Perfect competition and imperfect competition, such as monopolies
Solution

Title: Oil Prices: What’s Behind The Drop? Simple Economics
Length: 3 pages (968 Words)
Style: APA

Preview

Oil Prices: What’s Behind the Drop? Simple Economics

Taxes: a contribution to state revenues

Demand: willingness of a consumer to pay for a specific product or service

Supply: Total amount of goods or services available to consumers

Equilibrium Price: A point where the supply of goods or services meets the demand

Price Elasticity of Supply and Demand: Price elasticity of demand is the percentage change in the demand quantity divided by percentage price change while the price elasticity of supply is the percentage in quantity in supply divided by the change of price in percentage.

Perfect Competition: A market situation in which sellers and buyers are many and well informed.

The economic problem discussed in the article is poor performance of oil industries following a drop in oil prices in the last one month. Earnings for the companies have gone down despite their record profits in previous years. The companies have been forced to cut investments in production and exploration, while others have been forced to decommission not less than two-thirds of rigs. A few companies in the oil industry have gone bankrupt while more than 250,000 employees have lost their jobs (Krauss). The cause of the entire issue is the plunging price of a barrel of oil. The product is reported to have experienced a price drop of more than 70 percent since 2014. The return of     Iran to the international oil market is also to blame for the reduction of profitability in the industry. The current drop in oil prices can be explained using the economic concept of supply and demand.

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