Essay about Oil Price Hikes
This forces them to raise their oil prices as shown on the graph. The shift from Supply1 to Supply2 represents the increase in prices after shortages in supply. The numbers are unrealistic examples.
The Law of Demand is a negative relationship between price and supply. If the prices goes up, the supply will go down and vice versa. Shifts in demand can affect consumers' tastes, preferences, income, and price of substitutes. The hike in prices can leave a bad taste in consumers and affect their preferences to shift to substitutes. However, because substitutes are very limited over oil, the switch to substitutes proves to be difficult. This is mainly due to time dimensions. In the short run, majority of consumers, if not all, intends to stay on course despite the price hike. In the long run, consumers will begin to find substitutes.
The oil firms already aware that they are unable to operate their maximum efficiency with the Libya issue. This is called Production Possibility Curve. As shown on the graph, before the Libya crisis, the oil firms were running on max efficiency which is PPC1. When the Libya crisis began, the shift has put the oil