Economics Question Please Help! :((((((?





The assignment is to write an essay about the following: Osama Bin Laden emerges from hiding, returns to Saudia Arabia and overthrows the ruling Royal Family. An anti-American Muslim state is established and oil prices increase two hundred dollars per barrel overnight. In the context of supply and demand (do not consider any military implications) explain the likely result of this crisis. What would this do to the price of other goods and services? Explain. How would this occurrence affect the determinants of supply and demand for other goods and services, such as automobile purchases, and hotel rates?Remember, there is still the same amount of oil in the ground, just the price has changed. With this price increase what is likely to change first, demand or supply? What would other oil producing countries probably do? Your response can be free ranging but stick to the issue of economics. Okay, so I just want maybe some thoughts from others about what would happen? I'm not asking at all for anyone to do it for me, just some help getting started. :) Thanks!



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One Answer to “Economics Question Please Help! :((((((?”

  1. tugless says:

    Currently oil is what about $50/barrel, and would be rising suddenly to about $200/barrel in one day.The operating budgets of many consumers are relatively fixed, so to stay within budget, we’d need to react by immediately driving less, carpooling, telecommuting, and for business they would need to do the same for their deliveries of goods. Some people might immediately retire their large gas guzzler vehicles and buy hybrids as the high cost of fuel shortens their payback period and makes them a more viable choice. Businesses might be more likely to replace fleets with LPG or other alternative fuel vehicle.So I’m expecting to see Demand fall quickly in response to a quick rise in price.And with the fall in demand for Oil, expect a rise in demand for Hybrid vehicles, FFVs, E-85, LPG and other alternative types of fuel.Other oil producing countries may be able to increase their production, with some marginal price increase but not all the way up to $200/barrel. To the extent we can negotiate this, it reduces the impact of the Bin Laden take-over, helping maintain the high demand for oil and preventing large SUVs from being retired quickly for hybrids as might otherwise occur.