A major development in this article is the concept of demand and supply relates to micro economic concepts. Organization of Petroleum Exporting Countries (OPEC) members has worked a model that will see the demand and supply of oil is at equilibrium. Non-OPEC producers such as Brazil, Mexico and Russia have counterbalanced production decline of oil in Alaska and Venezuela. Other nations such as China, India and developing nations have been offset by a decline in oil demand in US and Europe. When the oil prices increased, oil-producing nations invested in production projects around the world.
In the late 2008, oil prices collapsed putting long-term gains of oil supply at risk. Large companies that invested in oil production had challenging moments on whether to continue with big investments in developed countries such as Canada. In the past say four decades, a number of oil price booms and busts followed by periods of stability have been experienced. The changes in business cycle is a measure of economic performance which relates to demand and supply in the short run. A long-term threat in such investment is the increased consumption of oil in China and other developing nations.
Explain what is meant by the term "an economic model" and outline a model of price and output determination in a free market. Examine the effect of a change in real disposable income on equilibrium price and output. An economic model or theory is a simplified explanation and analysis of economic behaviour. It allows us to predict, and therefore intervene, if we do not like the outcome of a ...
The rise of oil prices has made developing nations to replace diesel generators with alternative sources of energy such as gas, nuclear and wind. The use of alternative source of energy means that the demand of oil reduces and this pushes the price to fall. However, this is not a guaranteed situation because other factors such as economic down turn or political systems affect the price of oil. The high prices of oil that were experienced between 1999 and 2008 performed their economic function through additional supply. This is a macro economic issue that led to increased investment and exploration of production projects all over the world.