Since fall of 2004, rising oil prices (over $70 per barrel in the Spring of 2006) have frequently ended stock market rallies and led to declines in all major stock indexes.
Draw an AS/AD diagram which shows the effect on the US macroeconomy of oil at $70+/barrel versus oil at $40/barrel.
Label your diagram clearly and explain how higher oil prices impact either AS, AD, or both.
Finally, explain why rising oil prices have negatively impacted US equity markets.© BrainMass Inc. brainmass.com October 16, 2018, 6:29 pm ad1c9bdddf
The ASAD graph is just a way of visualizing the equilibrium forces in a market. It is similar to the supply and demand graphs you have previously studied. The key to drawing your graph is to realize that oil is an important input into the US economy. Therefore, any increase in its price will cause the AS curve to contract. I have attached a file showing the AS and AD curves before the oil price increase.
Assuming the AD curve doesn't move, when you move the AS curve to the left, what ...
Use of macroeconomic analysis to determine the effect rising oil prices have on supply and demand.
Oil/Petroleum industry's price elasticity of supply and demand
*Research the Oil/Petroleum industry's price elasticity of supply and demand.
- Is price elasticity of demand considered elastic or inelastic?
- Are there substitutes available
- Is the good a luxury or a necessity
- What is the price elasticity of supply
*Research any negative or positive externalities the Oil/Petroleum industry produces.
- Research any negative or positive externalities the industry produces.
- Does the transaction of a buyer and seller directly affect a third party?
- Is the effect a negative or positive externality?
- How does the externality impact the economy?
- Research whether the industry produces public goods or private goods, or is a
- Are the goods or resources rival, excludable, or neither?
*Research how wage inequality is measured and if it is present in the Oil/Petroleum industry.
- Describe any current or past news events related to wage inequality.
- What was the industry's method for determining that there was an inequality?
*Research monetary and/or fiscal policies that have affected the Oil/Petroleum industry.
- How have these policies affected the employment rates for your chosen industry?
- How have these policies affected the growth of the industry?
- How have these policies affected the prices of the product the industry produces?