Oil and the Economy

In: Business and Management

Submitted By gizmo324
Words 1679
Pages 7
Case Study 1, 2, 3

Submitted by:
Julie Ann G. Ropan
Carl Cedric P. Albunian
BSBA- Bus. Econ III- A

Submmited to:
Mrs. Pimeh C. Tolentino PH.D

Introduction The large production of oil is originated at the Middle East. Crude oil is one of the inputs of production of many goods and services that much of the world comes from Saudi Arabia, Kuwait, and other Middle East Country that which included in the monopoly. Monopoly is one of the market structures that a firm is a sole seller of product without close substitute. When some event (usually political in origin) reduces the supply of the crude oil flowing from the region, the prices of oil rises around the world. Because they think that it would be much profitable to them. But since the U.S is much affected to the inflation of the oil it is not favourable for them. U.S. firms that produce gasoline, tires, and many other products experience rising cost, and they find it less profitable to supply their output of goods and services at any given price level. The result is a leftward shift in the aggregate-supply curve, which in turn leads t stagflation. The countries with large oil reserves got together as member of OPEC, the Organizational of Petroleum Exporting Countries. OPEC is a cartel—a group of sellers that attempts to thwart competition and reduce production to raise prices. And indeed, oil prices rose substantially. From 1973 to 1975, oil approximately doubled in prices. Oil importing countries around the world experienced simultaneously inflation and recession. The U.S. inflation rate as measured by the CPI exceeds 10 percent for the first time in decades. Unemployment rose from 4.9 percent in 1973 to 8.5 percent in 1975. Almost the same thing happened a few years later. In the late 1970s, the OPEC countries…...

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