Chapter Two - The operation of market

The article: http://www.canada.com/calgaryherald/news/story.html?id=d8974b03-5c22-4daf-bc08-e7a9af8badb6&p=1

Summary:
This article from Calgary Herald talks about how lower prices of oil effect our life in different area and how people react to these lower prices. The recent slide in prices has a positive effect on Alberta, because it catches in the age-old balancing act between consumers and industry giants in the province’s commodity-based economy, which will provide a healthy tonic for consumers; however, it’s bad for Calgary’s producers who need to push back all their plans. On the other hand, analysts say they don’t expect the price of oil to sink much lower before it bottoms out and they forecast the prices for crude oil could return to the $80 to $100 US a barrel range this spring. Consumers also say they are not too excited about these low prices, because it’s probably going to go back up anyway.

Connections:
The connection to Chapter 2 of Economics is the concept of supply and demand. As mentioned in the article, “Motorists are heading into a low-volume driving season, which reduces demand for fuel.” This proves that consumer’s preference, driving less, results in a decrease of oil demand. As a decrease in quantity demand, the prices of oil drop as well. Also, oil/gas is inelastic because it’s a necessity. Even though there is a big change in prices, there is small effect on demand. Compare to last summer, the oil prices are very low right now; however, we do not use oil much more than we did in summer.

Reflection:
Since I am a driver, I do pay attention to the oil prices. It’s true that oil prices have dropped to around $1.10 per liter these days in Vancouver, but I don’t think the oil price will return to the $80 to $100 US a barrel range this spring. I under consumer’s preferences affect demand of oil; however, it’s not the only factors. We should notice that the “hurricanes” has a global affect as well. Economy is going downward in general everywhere in the world. I don’t think economy will resuscitate until late summer next year. The reason is by that time (around summer), more and more people will drive, which will increase the demand for oil. As demand increase, the price will increase as well.