Friday, March 8, 2013
Topic 4: Ripple Effects and Elasticity
Oil, over the past century, has become an important and irreplaceable( at this moment) energy source. The twenty-first century runs on OIL. Therefore, it is safe to conclude that a shift in oil price will affect many if not all goods one way or the other. An example would be the cost of vegetables in the supermarket, something a normal person might have thought had NOTHING to do with oil., but in fact does very much. Obviously, the farmer of the vegetables produce everything on his/her own, he or she is going to have to purchase materials or factors of production from elsewhere. To get these supplies fro m there and back to their farm is going to cost oil money, and if oil money rose, so does the farmer's fixed costs.
After the farmers having planted and harvested their vegetables, these vegetables are again going to have to be transported to the super market who purchased these goods. Since automobiles run mostly on oil, if the oil price goes up, the super market owner is going to have to pay more. In order to sell the vegetables for a profit, the owner of the supermarket is going to have to increase the price of the vegetables by adding on the price of the increased oil fee. This is going to cause a rise in price of the vegetables on sale for sure.
Vegetable prices is among only one of the examples exhibiting the ripple effect. Anything that requires any sort of transportation in the making would be affected by a rise of oil price.
The rise in oil price also affected me as it will now take more money to buy the same quantity of a certain product.
There are many other goods and services with similar impact on the economy as oil- the basic resources such as steel, silver, metal, wood...etc. These resources are irreplaceable and make up the foundation of many industries. A slight shift in price for any of these basic resources will, therefore, lead to drastic changes in the price of other products.