UCW Economics: Supply and Demand Article Analysis and Critique

This report provides an analysis of an economics article discussing the fall in oil prices due to trade tensions between the US and China. The report begins with an introduction, followed by an economic analysis explaining the impact of supply and demand on oil prices, specifically focusing on the expected decrease in demand due to the trade war. The analysis includes the use of a demand and supply graph to illustrate the relationship between price and quantity demanded. The report then critically analyzes the article, highlighting its focus on the trade war rather than the direct effects of supply and demand. The conclusion summarizes the findings, emphasizing the inverse correlation between demand and price, and the impact of anticipated demand decline on oil prices. References are provided to support the analysis.

Running head: ECONOMICS FROM A BUSINESS PERSPECTIVE
Economics from a Business Perspective
Name of the Student:
Name of the University:
Authors Note:

ECONOMICS FROM BUSINESS PERSPECTIVE
Contents
Introduction:....................................................................................................................................2
Economic analysis:..........................................................................................................................2
Illustration using supply and demand graph:...................................................................................3
Critical analysis:..............................................................................................................................4
Conclusion:......................................................................................................................................5
References:......................................................................................................................................6

ECONOMICS FROM BUSINESS PERSPECTIVE
Fall of oil prices due to trade tension between US and China that hit the demand outlook
Introduction:
The above underlined article with a different heading was published in Economic Times on
August 05, 2019. The trade war between the US and China with the president of US vowed to
impose additional tariffs on Chinese goods. As a result the fuel demand is expected to fall as the
two biggest crude consumers in the world at loggerhead with each other. The oil prices on the
day, 5th August, fell due to the concern of renewed economic growth after the intention of US
president was made clear.
Economic analysis:
As a result of the renewed global economic growth with the US and China tussling it out on tariff
issue the drop in oil prices was significant on the day of the article. A drop of 92 cents in Brent
crude futures along with 73 cents drop in US west Texas Intermediate crude futures were clear
sign of immediate effect on the crude prices due to the concern of lowering of demand (Salameh,
2017).
Demand and supply is one of the most real parameter that stands the time of test while it comes
to economic reality. As per the demand and supply rule the price of a good will increase with the
increase in demand of the good if there is no proportionate increase in supply of the good.
Similarly, the price of a good will decrease if the demand of the good decreases with no
subsequent change in supply of the good. Thus, demand and supply has opposite impacts on
prices of goods.
In this case the fall in crude prices futures is mainly due to the expected decrease in demand of
crude oil with tug of war between US and China expected to escalate in the future to negatively

ECONOMICS FROM BUSINESS PERSPECTIVE
impact the demand of crude oil as two countries are the two biggest crude consumers ("Oil prices
fall as trade tensions hit demand outlook", 2019).
Illustration using supply and demand graph:
As per the theory of demand and supply, the price of a particular good is directly affected with
the changes in demand and supply of the good. The relationship between quantity of goods
demanded and prices of goods can be understood from a demand curve. As per the law of
demand a higher price of a good is expected to reduce the demand for the good and opposite will
be the case if the price is lowered.
Image: Demand and supply curve graph
As can be seen from the above graph that the demand of a good, denoted in quantity q is
expected to increase with price of the good denoted in p reduces. Vice a versa will be the case.
Thus, the above demand curve clearly shows the negatively correlation between demand and
price of goods.
In this case the oil crude prices have declined on the day of the article in response to the fear of
lowering of demand as the two biggest consumers of crude oil are at loggerheads with each other

ECONOMICS FROM BUSINESS PERSPECTIVE
in relation to the tariffs. As a result it is expected that the economic growth will be negatively
affected resulting in lowering of demand of crude oil. This has been manifested in the drop of 92
cents in Brent crude futures and drop of 73 cents in US West Texas Intermediate crude futures
(Nichol, 2017).
Critical analysis:
The article discusses the drop in crude prices futures as a consequence of tariff war between US
and China with the president of the former vowed to increase tariff rates on the Chinese goods.
The rule of demand and supply clearly states that the increase in demand with no commensurate
increase in supply of goods will result in increase in price of the good. Opposite will be the case
if the demand reduces, i.e. the price of the good will decrease if the demand for the same
declines. However, the article instead of focusing on the impact of demand and supply on the
current prices of crude oil has focused primarily on the issue of US President imposing 10%
tariff on $300 billion of import made by the US from China starting from September 01, 2019.
The step taken by the US President is in response to the failure of Chinese President to ink the
trade deal between the two nations ("The US Shale Gas Revolution and Its Externality on Crude
Oil Prices: A Counterfactual Analysis", 2018).
Thus, the focus of attention of the article was mainly the tug of war between the US and China
instead of the effects of demand and supply on the price of crude oil. The analysis in the
economic article was missing to show the effects of expected decline in the crude oil on the
crude futures. The 1.5%% drop in Brent crude futures and 1.3% in US West Texas Intermediate
crude futures clearly represent the market fears of declining crude demand in the future. The
article lacks explanation to support the demand and supply theory (Gurrib, 2016).

ECONOMICS FROM BUSINESS PERSPECTIVE
Conclusion:
Considering the discussion on the demand and supply of crude oil and how the price of crude oil
futures have declined subsequent to the news of US imposing 10% tariff on imports made from
China. The rule of demand and supply clearly explains the impact of demand and supply on the
price of goods with opposite correlation among the two forces of economy. A clear picture of the
impact of demand and supply of crude oil on its prices though have not been discussed in the
article but the impact of expected decline in demand of crude oil is clearly visible on the crude
prices as the future prices have reduced in two separate future indexes.

ECONOMICS FROM BUSINESS PERSPECTIVE
References:
Gurrib, I. (2016). The Impact of Speculators' Activity on Crude Oil Futures Prices. SSRN
Electronic Journal, 3(2), 18-39. doi: 10.2139/ssrn.958864
Nichol, A. (2017). Monopoly Supply and Monopsony Demand. Journal Of Political
Economy, 64(12), 861-879. doi: 10.1086/255966
Oil prices fall as trade tensions hit demand outlook. (2019). Retrieved 6 August 2019, from
https://economictimes.indiatimes.com/markets/commodities/news/oil-prices-drop-as-us-
china-trade-war-fuels-growth-concerns/articleshow/70529056.cms
Salameh, M. (2017). China: The Ultimate Decider on Crude Oil Prices. SSRN Electronic
Journal, 4(2), 177-290. doi: 10.2139/ssrn.2333980
The US Shale Gas Revolution and Its Externality on Crude Oil Prices: A Counterfactual
Analysis. (2018). Sustainability, 10(3), 697. doi: 10.3390/su10030697