Econ Paper

ECON 101: EX02 – term paper

For this Economics term paper I will write about the price of oil and how it affects the production of oil to make gasoline. The purpose of this paper is to explain how the three economic concepts that I will use will explain how it affects the market for gas. The three economic concepts that I will use to explain my topic are: Supply and Demand curves, Price ceiling and flooring, as well as Elasticity and inelasticity.

In society, the market for gas fluctuates depending on short term changes or long term changes within the economy. When we look at oil in the short term, both the demand and supply curve are very inelastic. For instance, if the price of gas was very high – many people cannot switch to another fuel source such as diesel. Many cars are designed to use specifically one type of gas – petroleum or diesel. In addition, if we look specifically in Alberta, we have one of the largest sources of supply for oil. However, the price to pump litres of oil out of the ground is quite pricey. We have to consider many objectives such as oil field workers on the oilrig, the cost of locating and getting crude oil out of the ground. Crude oil is the main supply to change its form into gasoline to supply to customers. As cited by the natural resources Canada page of the government of Canada, gasoline prices can be increase substantially due to “crude oil prices nearly doubling within the last few years” (natural resources Canada, para 1). In addition, several factors that may also cause an increase or decrease in gasoline prices are: availability of supply to meet demand, competition between retailers, or seasonal demand such as during the summer (natural resources Canada, para 9). These factors listed above are potential causes that can affect the market of gasoline. Below in figures 1.1 – 1.4 shows how these factors affect the supply and demand curves of gasoline.

Furthermore, the concepts price ceiling and flooring have an effect...