The article about the rising oil price indicates two main economic concepts: first, “the rule of supply and demand”, and second, that” human wants is insatiable. ” Oil is a natural resource and it is created by nature through thousands of years. Time is a very important element in the production of oil. Despite the fact that oil wells and rigs are discovered and/or pumped, still, the natural element of this product is very important. Going back to the relevant economic factors about rising oil prices, there is an unlimited demand for oil while its supply is getting scarcer.
Aside from this fact, millions, if not billions, of dollars of investments are needed to have the black gold extracted, refined, and distributed. Everywhere oil is used. It is not only with the vehicles but also with all the machineries producing the goods and even food products that we consume on a daily basis. The second economic factor is the insatiability of humans in terms of their wants. Everyone wants this and everybody wants that. We all consume. We all want to acquire resources.
This relates to the article in a sense that: (1) more consumption means more oil consumption; (2) in acquisition of wealth, natural and man-made factors happen in having oil prices rise; and (3) investors in oil trade would always go for a good profit margin while consumers would like to spare resources (money). The first factor is related to the explanation of supply and demand above. The second factor is important because natural calamities such as storm affects oil production but this all goes back to the fact that once the supply of oil is limited, and the demand is big, the market has to balance out and the only way is to raise prices.
This benefit the “wants” of the investors who, in every situation, have their means in having their investments get a very good return. Consumers on the other hand, take their chance in acquiring cheaper oil as they want o save their resources in order to have extra left behind to acquire the rest of their needs and wants and this is explained by having their tanks full before the prices increase. Lastly, oil is not in market where fair competition rules. It is monopolistic. The major factor that makes it so important is its scarceness; its having limited supply with steady demand. Peer review on responses 1, 2 and 3
In the first response, the idea that oil is very vital in society is agreeable. The rest of the discourse of the article, however, is strongly disagreeable. First, in the point indicated that “the oil industry is an example of a perfectly competitive industry” and at the same time noting that “neither the firm nor its consumers decide on the price, rather the entire industry”. First oil is a product that triggers monopoly whether consumers like it or not. Second, the article contradicts itself: if the industry decides on the pricing itself, not the interaction of the oil firms and their consumers, this means that the market is “not free”.
Not free means NO competition at all. Lastly, the article noted that “consumers never worried about spending massive amounts of money on oil during an economic struggle” and it is not true. Oil makes everything else expensive and it may be possible that no demonstrations are done against oil but against economic crisis, but it is important to realize that at least 70% of that crisis can be attributed to oil price movement: your cereal will be expensive once oil used in machineries producing it becomes expensive!
Argument number two is also very good emphasizing the monopolistic characteristic of oil as a consumer product. The article even dwelled on deeply going into criteria of monopoly to establish the hypothesis, that indeed, this product is never a competitive product, in a sense that whether consumers like it or not, they are just forced to acquire oil out of necessity. The article is very “narrow” though. Maybe a little bit of expansion as to the idea of having it monopolistic and other related factors would even make the idea of the response more interesting.
Lastly, response number 3 is a very good work. Admittedly, my response runs on parallel path as this one. It emphasizes the scarcity of the product, the inelasticity of demand, which is always there, despite the presence of supply or not. It focuses in the effect of transportation though, just like what was written in the article, not like what I have though to widen my perspective in reacting to oil-related write up.