Week 2 - 9/9/2024
CHAPTER 3
● The oil market can be considered the most important market in the
world.
● Changes in the demand for and supply of oil can plunge one economy
into recession while igniting a boom in another.
DEMAND
A demand curve is a function that shows the quantity demanded at different
prices
- it shows the quantity demanders are willing to buy at different prices
- law of demand = the lower the price, the greater the quantity demanded
Oil has many uses: (e.g. 42 gallons are used for)
– Gasoline (19.5 gallons)
– Jet fuel (4 gallons)
– Heating, energy generation, making of products (like lubricants,
kerosene, plastic, tires etc) (18.5 gallons)
However, oil is not equally valuable for all its uses
– More valuable for gasoline and jet fuel
, – Very valuable for transportation because oil has few substitutes for
that use
– Oil has more substitutes in heating and energy direction. It competes
directly or indirectly with natural gas, coal, electricity.
This explains why the demand curve for oil has a negative slope.
At the top of curve, Byers will choose the more valuable option like jet fuel.
CONSUMER SURPLUS = the difference between what you are willing to pay and
what you must pay
– It the consumer’s gain for exchange (they would pay more if they
had to)
Total consumer surplus = adding up consumer surplus for each consumer and
each unit
– Measured by the area beneath the demand curve and above price
⸻
SHIFTING THE DEMAND CURVE
CHAPTER 3
● The oil market can be considered the most important market in the
world.
● Changes in the demand for and supply of oil can plunge one economy
into recession while igniting a boom in another.
DEMAND
A demand curve is a function that shows the quantity demanded at different
prices
- it shows the quantity demanders are willing to buy at different prices
- law of demand = the lower the price, the greater the quantity demanded
Oil has many uses: (e.g. 42 gallons are used for)
– Gasoline (19.5 gallons)
– Jet fuel (4 gallons)
– Heating, energy generation, making of products (like lubricants,
kerosene, plastic, tires etc) (18.5 gallons)
However, oil is not equally valuable for all its uses
– More valuable for gasoline and jet fuel
, – Very valuable for transportation because oil has few substitutes for
that use
– Oil has more substitutes in heating and energy direction. It competes
directly or indirectly with natural gas, coal, electricity.
This explains why the demand curve for oil has a negative slope.
At the top of curve, Byers will choose the more valuable option like jet fuel.
CONSUMER SURPLUS = the difference between what you are willing to pay and
what you must pay
– It the consumer’s gain for exchange (they would pay more if they
had to)
Total consumer surplus = adding up consumer surplus for each consumer and
each unit
– Measured by the area beneath the demand curve and above price
⸻
SHIFTING THE DEMAND CURVE
