Political Economy Analysis: Gas Resources in USA vs Australia

This essay provides a political economy analysis of gas resources in the USA and Australia, utilizing the general equilibrium model and the Edgeworth box to illustrate resource distribution and economic equilibrium. It examines the effects of promoting previously unused gas resources through fracking, the impact of new gas deposit discoveries on economic equilibrium, and the current welfare status of both countries resulting from gas and oil deposits. The analysis includes a discussion on whether the US economy could be damaged by these factors, evaluating relevant hypotheses and their outcomes, while also discussing the importance of trade and understanding price implementation in these markets. Desklib offers a platform for students to access similar solved assignments and resources.

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Political Economy
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Introduction
Generally, the modeling of stock resources between nations can be indicated by the general
equilibrium model. 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 Edgeworth box which represents different distributions of
resources. The box shows the competition equilibrium resulting from two parties. Therefore, the
Edgeworth 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 Edgeworth box
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

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economy (Heselhaus, 2018 p.78). The reduced prices of gas related goods 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).
Some of the goods obtained from gas deposits in the two countries include;
The petroleum goods in Australia.
The natural gas in USA.
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 Edgeworth box
The two countries tend to possess large deposits of natural gas and petroleum products. The
discovery of new wells will affect the economic equilibrium between the two nations
(Bhattacharya & Akbar, 2012 p.87). Some of the effects of the discovery of new gas deposits
include;

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The increased issue of competitive economics.
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.
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 produced by the two nations (Noel, 2018 p.16).

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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 equilibrium level. 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.
In addition, if the production equilibrium occurs 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 the petroleum
products 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).

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(Fig, 2). Transformation curve for the two goods (Noel, 2018 p.197).
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 marketplace. 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 oil deposits
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

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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.
Currently, Australia has become a highly reliable and competitive market player in the oil and
gas production industries. The current state of welfares in Australia as a result of oil and gas
discovery has involved the contribution of the product to corporate social responsibility
programs, environmental conversation, restoring deposits projects and also community
development programs. Australia has current ethical and regulated trading agreements regarding
the imports and export sector of gas and oil in supplying to other countries.
The current welfare of Australia indicates resulting from gas deposits discovery indicate that it's
become the main source of energy and not to be used for warfare creation, destruction or
weaponry.

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Gas (CSG) has expanded altogether throughout the years and has as of late gotten a tremendous
$31 billion dollar interest in 2010 (Lloyd, Luke, and Boyd, 2013,p.125). CSG is just delivered in
New South Ridges and Queensland and is turning into an imperative household energy source.
Because of Australia's area in connection to different nations, ordinary gas pipelines can't be
utilized in the transportation of gas and in this way gas is generally transported as fluid gaseous
petrol
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
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
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.

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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( Nye Jr,2016. ,p.66). 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 oil and gas deposits serve to neutralize these risks and balance the s economy
preventing it from getting damaged. Oil and gas are 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.
• 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

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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, oil 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).
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 oil 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.

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