The analysis of event by using the supply-demand framework
Demand and supply are two perhaps the most powerful market forces. Together they set the equilibrium price level and quantity sold (Mankiw, 2007). Therefore, the analysis of their determinants is of special interest for us.
OPEC reduced the production of oil and therefore its price increased. The reduction of oil production by OPEC countries represents the change in quantity supplied i.e. the decrease in quantity supplied. The members of Organization of Petroleum Exporting Countries (OPEC) decided to increase their incomes. In order to achieve this goal they, decided to reduce the quantity supplied at every price level. Supply and demand are relatively inelastic, therefore the sharp decrease in quantity supplied resulted in shift of supply curve and thus in the substantial price increase.
The tax on gasoline consumption increases. This event will result in increase of oil price, therefore it will change the quantity demanded i.e. reduce it. This impact will be represented by the movement along the demand curve.
Firms start producing more fuel efficient vehicles. This event will probably have a dual effect on consumption patterns. First, the change in production technology should be associated with additional capital expenditures therefore the price of new fuel efficient cars will increase leading to decrease in quantity demanded and the shift along the demand curve. On the other hand, customers will spend less on fuel therefore we can expect the quantity demanded to increase and its curve to shift to the right.
Summer arrives and more people choose to take vacations. This change is similar to the change in consumers’ tastes therefore it represent the change in quantity demanded and will result in shift of demand curve to the right.
The price of gasoline increases. It affects both demand and supply sides and will result in movements along their curves respectively. The quantity supplied will increase and the quantity demanded will decrease. These changes can be explained by the laws of supply and demand respectively.
The price of ethanol, a complement good, increases. It will affect the quantity demanded because it is a change in price of related good. We can expect the quantity demanded of a good complement to ethanol to fall and the demand curve to shift to the left.
There is a large oil spill in the Gulf of Mexico. The event represents the sharp change i.e. the decrease in quantity supplied and will result in the shift of supply curve. This situation will lead to deficit of oil products therefore is associated with price increase.
Incomes fall because a recession begins and gasoline is a normal good. The quantity demanded of gasoline will fall and its curve will shift to the left. Falling incomes result in decreases of quantity demanded for all normal goods.
Consumers desire more electric powered vehicles instead of gasoline powered vehicles. This event represents the change in consumers’ tastes therefore it results in increase of quantity demanded at every price level …