Analysing the trends that lead to mismatch in the price of crude oil and gas

Economics

TABLE OF CONTENTS
1) Analysing the trends that lead to mismatch in the price of crude oil and gas...................3
2) Change in equilibrium price and quantity with change in demand and supply.................3
3) Practical application...........................................................................................................4
REFERENCES...........................................................................................................................6

1) Analysing the trends that lead to mismatch in the price of crude oil and gas
There is always a discrepancy in the price of oil and gasoline. Crude oil is the main
input for making gasoline because of which it accounts for 50% of the price of gasoline. The
low oil price is important for lower gasoline price which means more disposable income to
spend and expand the economy (Carpio, 2019). Gasoline is the low elasticity product in
which change in price have a little influence over the demand. From 2003 to 2008 there is a
positive relation between the two. Oil prices is not only dependent on demand and supply but
other factors as well like speculators in financial services who bets on the oil prices which is
an important force in setting the price than the actual demand, oil supply is controlled by
OPEC and the hedgers who are limiting the consumptions of oil (Jo, Karnizova and Reza,
2018). The price of gasoline is not only dependent on oil but also on costs such as taxes,
refining cots, marketing costs which is unaffected by the price of crude oil. The price of oil
affects the price of gasoline and individual spending as well. Thus, price of gasoline is
strongly correlated to oil price however, both are affected by the factors other than price of
crude oil affects the price of gasoline.
2) Change in equilibrium price and quantity with change in demand and supply
The impact of change in demand and supply on the equilibrium price and quantity of
eth good is stated below.
a) Only supply decreases
A decrease in supply will lead to increase in the equilibrium price of the goods and a
decrease in the equilibrium quantity because fewer goods are supplied (Buechner, 2018). The
decrease supply leads to creates excess demand of the product in the market and the excess
demand causes increase in the price of goods and decrease in the demand of the quantity of
the goods.
b) Only supply increases
In case of increase in supply, there will be reduction in the equilibrium price and rise
in equilibrium quantity. This is because increase in supply creates excess of supply in the
market which causes fall in the price of the goods and increase in quantity demanded of the
goods.
c) Only demand increases