Summary:
This article is about the current situation with the rising oil prices. More specifically, the article indicates the new floor price of a barrel of oil being at $100. The reasoning behind the new record high in crude oil prices is due to the high production costs and budgetary requirements in Saudi Arabia. In a previous point in time, the “fair price” for a barrel of oil for both producers and consumers was $75 a barrel. For the longest time, Saudi Arabia the leader of OPEC (Organization of the Petroleum Countries) has been looking for excuses and reasoning to increase the price of oil. One example would be the tampering with the supply of crude oil to manage prices. The crisis in Libya means that Saudi Arabia no longer needs to moderate prices to set up a long term demand for their oil amongst their consumers.
Connections:
The factor of aggregate demand in the article is price. After all, it is the price of oil that has changed, nothing else. The price of crude oil changed, because of the current riots in Libya and as well as the decisions made by Saudi Arabia, the leader of OPEC. As a result of the change in oil, the subsequent products and services that revolve around oil will also increase in price due to the new higher production costs. When consumers see the ridiculously high gas prices and other high prices, due to the increase of crude oil prices, their initial response is to spend less and save more for a rainy day or until there are discounts. The frugal nature to spend will result in an overall decrease in GDP.
Reflection:
Aggregate demand plays a proportionally large part in our every day spending routines. I feel that the factors really do reflect do decisions regarding when to purchase a product. When I have a surplus of disposable income I would usually be more liberal about purchasing goods for myself. However, during the summer when I lack disposable income, I tend to be smarter with my spending and budget accordingly. I personally believe that price is the strongest factor of aggregate demand. Too often are we turned away from products due to their triple digit retail price tag, looking for a cheaper mean of obtaining them or simply waiting for a sale to occur.
4 comments:
you have done a very good job on your blog and i agree with you blog. tthe prices of oil have gone to high and you have used consumer spending as the aggregate demand but in my opinion i think that the government spending is part of the oil price rising. government are putting taxes on the oil which makes the price of oil even higher.
I agree with the fact that price is the main factor in this article. All the chaos and turmoil we have seen in Libya has provided the perfect excuse for Saudi Arabia to increase oil prices. And price changes are an important factor in determining the level of consumer spending. An increase in spending will lead to an increase in GDP, which will further lead to more jobs being created and the unemployment rate to decrease.
I agree with you that price is the factor of aggregate demand that has lowered the demand for crude oil these days. The demand for consumer purchases is the main reason that affects the aggregate demand for oil right now. The extremely high prices of oil are certainly the reason why people are holding back on their purchases on oil and they are deciding if they should switch to another type of transit. Since there many other options of transit, oil for a car is elastic which means that people will respond greatly when there is an increase in price. People may start to consider at what times they should walk or at what times should they drive to a certain destination. I would like to bring out a point of what other options that people can take instead of driving a car. Many people will consider changing their mode of transportation such as by walking, biking, or taking the bus instead of driving. Since some people are still recovering from the recent financial crisis in 2008, price plays a major role in financial decisions made by consumers. I also agree with you that disposable income do affect our spending habits. Generally if we have a low disposable income, we tend to be more cautious about our budget and we make smarter decisions on our spending. My suggestion is that if you have low disposable income and you are very cautious of your spending habits, you should take a cheaper form of transport such as busing. If you have a high disposable income and you are not desperate in financial aid, driving a car will be convenient form of transportation as the price of oil won’t matter that much to you. Good Job on your connection. You made significant connections between the chapter and this article.
By: Joshua Thang
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