Analyzing the Economic Effects of Fracking and Gas Deposits

This report delves into the political economy of fracking and its impact on gas deposits, particularly focusing on the United States and Australia. The analysis employs the Edge worth box model to illustrate the effects of new gas discoveries on price equilibrium, trade, and overall economic welfare. The report examines the implications of President Obama's thesis regarding fracking, considering both the potential benefits like energy independence and job creation, and the associated concerns such as environmental pollution. It compares the gas reserves in the USA and Australia, highlighting how the discovery of new gas deposits influences the countries' economic equilibrium and trade relations. The report explores the effects of gas price fluctuations, the impact on goods such as rice, and the overall welfare changes in both countries. The conclusion evaluates the validity of the president's claims, considering potential economic damages and future prospects based on current market conditions and global instability, ultimately assessing the long-term effects of fracking and gas deposits on the US economy.

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Political Economy
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Introduction
Over the past few years thre have had several anti-fracking protest in US, New York. This has
been brought about by President Obama thesis which highlights why he wants the US fracking
technique in the oil deposits (Thorsten Schröder, 2012, p.77) this hypothesis however have
sparked off large protest against the gas production threatening to split America. Generally, the
modeling of stock resources between nations can be indicated by the general equilibrium model.
The presidents wants various landowners, gas industries and also contractors to reposition in
order to pave way for immense gas production. This is advantageous since to the currently since
the president wants to decrease the oil imports from Saudi Arabia by approximately half in the
year 2010vsion.With these fracking techniques, it would see the country become one of the
greatest gas producers in the world. One of the pros include America gaining energy
independence and growth of its economy. The president beliefs that fracking will bring explain
of job benefits.However, some citizen are worried of pollution and enquiring whether water is
safe for human consumption. This can affect health. The discussion compares the gas reservoirs
in the United States of America versus the gas deposits in Australia (Cartwright, 2013 p.87).The
USA is believed to have large gas deposits compared with Australia. The discovery of gas
deposits and also oil deposits shows an increase in the number of gas-related goods. In order to
illustrate the modeling of the model then there is a need to account for the Edge worth box which
represents different distributions of resources (Balthrop, and Hawley, 2017). The box shows the
competition equilibrium resulting from two parties. Therefore the Edge worth box serves as the
precursor to the bargaining problem of the game theory in the economy thus giving a numerical
solution to cover the subject matter.
Effects of promoting previously unused gas resources by fracking in Edge worth box

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In addition, the effects revealed by the presence of gas deposits in one country shows an increase
in one axis of the box thus shifting equilibrium to the endowment point (Cartwright,2013
p.287).The shift shows that preference remains unchanged and thus reaching efficient
equilibrium. The structure of preference revealed by the two countries tends to compare
economic equilibrium in providing gas related goods. This shows that both the USA and
Australia need to benefit from the gas reserves. Therefore, the countries will benefit mostly
through trade (Davis, 2012 p.76). Australia has small gas deposits meaning that it will
experience the endowment period even after discovering large deposits. On another hand, the
USA will also receive the higher indifference curve throughout the endowment. If assumptions
are taken before the discovery of gas deposits in the two countries, the equilibrium point will be
different. This shows that increased prices of gas related goods will render the USA to reduce the
prices of other products thus affecting the economy (Heselhaus, 2018 p.78). The reduced prices
of rice in the USA will reduce the equilibrium point in the box while the curve for Australia
continues to grow rapidly.
Countries and goods in the discussion.
The introduction part has clearly indicated the existence of gas deposits in the USA and
Australia. The two countries are ranked differently with the USA on 4th position than the
Australia which is on 18th position. The USA has large wells for the supply of adequate gas
related products and also oil-related products as compared to Australia (Fischer & Pizer, 2017
p.23).
Goods chosen
’RICE

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GAS.
The two goods that are oil products and natural gas are different between the two nations. The
equilibrium experienced by natural gas in the USA, not the same in Australia. The USA has large
wells that can produce a large number of gas related products. The difference can be achieved by
initiating a module that will target to level the axis in the box.
Effects of the discovery of new gas deposits on Edge worth box
Effects on price before new resource gas discovered’
The price of gas is very high in US since most of it is imported from Saudi Arabia. This
increase its price at household and national level. This is because the resource is higher in
demand and also scarce. This demand curve increases the price of the product
The two countries tend to possess large deposits of natural gas and petroleum products. The
discovery of new wells will affects the economic equilibrium between the two nations
(Bhattacharya & Akbar, 2012 p.87). Some of the effects of the discovery of new gas deposits on
price include;
Effect of price after new resource (gas) is discovered
New deposits on gas production will ensure that there is a large supply of the products and thus
changing the equilibrium axis in the box. The overall concern and driving force for the
competition is to increase the market price within the country (Bhattacharya & Akbar, 2012
p.87). The change of prices and demand equates the supply chain thus acquiring equilibrium in
the box. There the price increases. After discovery of the new resource the price reduces since it

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is in surplus and import cost is cut off.it is also in constant supply hence reduced prices on
household level. It also leads to decrease in prices of other goods like rice.
The increased production and exchange between the consumers.
New discovery of gas deposits ensures there is complete economic activity in the nation. The
countries will use the inputs necessary to access the gas products. The box, therefore, will be
affected because it represents different alternatives for different goods. For example, in the figure
below;
Fig 1.The production equilibrium for goods rice and gas against price produced by the two
nations (Noel, 2018 p.16).

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Edge worth box diagram for rice and gas products
X AXIS PRODUT
P
Y2- rice
Q’
X2-GAS
------------------------------------------------------------Q
T
-------------------------------G
P’
PRICE OF PRODUCT Y AXIS
If the T or G indicates the location criteria and amounts of goods produced by the nations then
the equilibrium will be determined depending on demand. The preference for the goods will also
affect the price equilibrium level after the new resource is found. The figure also shows that if a
certain discovery is obtained at point T, then the total equilibrium for production in the two
countries will be determined at point Q on the curve RH in the box. The curve RH will not only
indicate the discovery of new deposits but also the equilibrium amount which is established be
between the countries.

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In addition, if the production equilibrium price increases at Q, then the output for discovered
deposits occurs at X2 of produced natural gas in the USA and if the output for Y2 of RICE
production in Australia will be easily be determined in the curve (Noel, 2018 p.167).
The two goods change the general equilibrium of production.
This shows that one commodity can be sacrificed to produce the other one. Also, the countries
may discover new deposits at different rates. If one of the countries gets small deposits then the
issue of trade arises thus leading to exchange. The act of trade changes the total equilibrium thus
forming transformation curves. For example in the figure below the production of petroleum
products (Y) may be sacrificed to produce natural gases (X) thus increasing the overall
production natural gas (Mitchell,2011 p,32).
The curve shows that if one country fails to discover more deposits then one good can be used to
regenerate the other good (Peucker-Ehrenbrink & Schmitz,2012 p.89). In case the two nations
have equal discovery on gas deposits then the transformation curve changes to a straight line thus
giving a slope as indicated by pQ"p".
Lastly, the other change is based on equilibrium and efficiency in profit maximization. The
equilibrium in the box will be achieved if the two goods from the countries are experiencing
maximum profits in the market price... If all gained equal profits the equilibrium of the box shifts
thus capturing the efficiency of production.
Current welfare of Australia and US resulting from discovery of gas and rice
Before the discovery of the product, the price of gas and other goods like rice was
high .energy cost was also high hence increasing household goods and industrial products.

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The current welfare of however changed after discovery. This is evident from president
Obamas thesis hypothesis that new resource improves the economy. The price of gas
reduces hence US is able to acquire more energy for production of more goods by
household and industries. They are also able to export the gas
Currently, It is crucial to note that the ongoing USGS survey gauges for doubtful oil and gas
reserves (evaluated assets dependent on geologic learning and hypothesis) and also recoverable
gas deposit reserves (assets accessible utilizing current innovation and industry practices). While
sensible ends can be drawn about the degree of assets in these reserves, the approximations don't
address future economic gainfulness (Kumar et al 2011, p.497). The current affairs of the US
regarding gas discovery indicates that The future costs of hydrocarbons and their financial
feasibility may shift because of an ecological guideline, innovation, explicit topography, and cost
of production.
The US is right currently experiencing a noteworthy mid-stream infrastructural bottleneck, which
means the nation needs adequate pipeline ability to move all the oil and gas we are removing to
willing purchasers.
Hence the eventual fate of the Wolf camp and Bone Spring fortune will be dependent upon the
bearing of worldwide oil markets and the North American gaseous petrol market demand.
However, it is great to realize that the nation can inhale simpler if worldwide instability
compromises imports. The current state of affairs and condition of the country's oil and gas
stocks is brilliant.
Currently, America's energy security just got much progressively secure.

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One other product such as rice in Australia. The price will not increase as the gas price in
America
The higher indifference curve in Australia rice product, the lower the indifference curve in US
gas curve. In the sales model regarding .edge worth box, I can conclude that USA is in the
efficient point
Is it possible that the US even economic Get damaged?
Try not to anticipate that the economy should crash
The US economy cannot get damaged quickly since household finances have been increasing.
Throughout the last four quarters, their land value is up 10.0%, budgetary resources up 8.0%,
obligation up 3.4%, for addition in total assets of 8.2%, in light of Federal Reserve information.
America's banks hold more capital with respect to resources than before the last recession
Argument section: pros and cons
President Obama thesis is important as it values the US 2020 economy. The new gas deposit
mined through fracking technique will serve to improve the country’s economy over a long
period of time. Employment will also be created and homes will utilize more electricity at
cheaper prices.US will become more independent in production of energy resulting from gas
deposits. According to the edge worth box, the natural gas decrease the sales price of households
form 1% to 3%.With this in mind, President Obama’s theory is valid since actual cost of
property and fracturing technique will decrease.
However, the securities exchange has ascended throughout the previous three years, starting a
few stresses. More often than not, stock costs are a reaction to changes in the economy, however

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once in a while stock costs can impact the general economy. The market isn't so exaggerated
since it will drag a sound economy into a crash, however, it would absolutely fall if some other
reason set off a recession (Montz, Tobin, and Hagelman, 2017,p.190). At the point when the
economy is delicate and the Federal Reserve is keeping rates low, there isn't much shot of them
setting off a recession. Since the Federal Reserve is raising financing costs interest rates and
running down its securities portfolio, the danger of a recessionary oversight is greater.
Another conceivable trigger of a recession in 2019 or 2020 is a breakdown in universal business
because of President Trump's trade wars. There is a possibility of an economic clash if
arrangements go south, demolished by contending inner selves and economic ignorance. These
trade wars are affecting the profits made from trading gas and oil with other nations such as
Mexico through exports (Page., 2013,p.77). The fundamental economic damage on the US can
be outlined by the way that despite the fact that middle-income salary in 2016 scarcely pushed
out its 1999 dimension, US gross domestic product (GDP) output per individual was 18 percent
higher toward the finish of 2016 than it was toward completion of 1999.A portion of this is
because of the distinctions in the manner in which inflation is determined, yet the reality remains
that in ostensible terms, per capita Gross domestic product has grown 66 percent since 1999
while middle family unit salary has become just 45 percent.
Therefore the rice and gas deposits serve to neutralize these risks and balance the s economy
preventing it from getting damaged. Oil and gas is important in various industries that contribute
immensely to the overall economy of the US.
On the other hand, it is evident that this will make the country richer while the typical household
had not gotten any richer. This will affect the economy in the following aspects.

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• Growth has been on a very basic level unequal, with families at the best procuring a disport
[ordinate economic gain.
Evaluate the hypotheses in terms of their result
It is highly critical for the US and Australian markets to appreciate the advantages of trading in
gas and oil and understanding how their prices are implemented. The Edge worth box can be
used by the miners in the decision-making process regarding the planning resources in order to
improve the economy and incrr4sea consumer demand. The production Edge worth box indicates
efficiency and results in efficiency distribution. Inside the edge worth box, efficiency
combinations of two goods i.e. oil and gas in both Australian and the US indicate the results of
benefiting consumers (Buzan, 2010,p.5). The Edge worth box analyzes how the market of the
two goods, rice and gas acquires competitive equilibrium curve.
''Microeconomic change'' are approaches that expect to diminish market economic bends by
means of deregulation and increment monetary productivity. In any case, there is no
unmistakable hypothetical reason for the conviction that evacuating a market bending will
dependably increment monetary effectiveness. Utilizing the Edge production Edge worth box
demonstrates that production efficiencies equal to distribution efficiency. From the results, we
derive a production possibility which compares the hypothesis of the Edge worth box
(Hamawand, Yusaf, and Hamawand, 2013,p.550).
MODEL
The repeat sales model
The price index of gas will enlarge in the edge worth box

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When America discovers new extra resource (gas) the price of household energy decrease
sharply from one edge. Therefore one axis of the new American product enlarges
The price of Australian product,rice however flattens after decreasing in the market
The price of rice lowers
In this case, the hypothesis is based on the assumption that quantities of labor and capital
allocated to the mining of product X (gas) and Y (Oil) are known.
Production function of gas and rice is given by X=X (Kx, Lx) and Y= Y (KY, Ly
Where Kx+Ky= K = Max capital
Lx+Ly= L = Max labor force in the consumption Edge worth box, the lower left corner typically
indicates zero consumption point
Upper right consumer zero consumption point.
Upper right corner zero output of oil(Y)
Lower left corner=zero output of gas (X)

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Fig 3: Results Natural gas market imperative (Noel, 2018 p.197).
A market can be said to have allocative effectiveness if the cost of gas and oil that the market is
providing is equivalent to the maximum value customers place on it, indicated by the total
hypothetical marginal cost.
Conclusion
As evident from president Obamas thesis hypothesis the discovery of gas deposits are expected
to have many benefits in the US. Other products such as rice are expected to control the market
demand. The thesis therefore should be supported by all Americans since it will be used for their
own household benefits.

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