Chapter 2

http://www.theglobeandmail.com/servlet/story/RTGAM.20061101.woilprices1101/BNStory/Business/

So what is all the talk about these days? Oil prices! Oil is essential to daily life for anyone who is living in British Columbia. We use it for food, work, and most importantly, transportation. So, what is happening with oil prices recently?

According to the article, oil prices have dropped and demand is low. But, refiners are actually boosting production. They are operating at two percent higher capacity than last week. The oil price dropping is due to the fact that this market really has nothing to drive for higher prices. The Institute for Supply Management’s manufacturing index even showed growth at its slowest pace in three years! However, the article does say that nothing is fixed and if something suddenly happens, then that “would bump up fuel demand and prompt a price spike…”

This article deals with the concept of elasticity and supply and demand. Oil demand is high for all the necessities of life, and oil is limited around the country. This leads to higher gas prices because everyone needs this resource. Generally, prices should go up, but this article shows that oil prices are actually going down. So, what can account for this to happen? Simple. People are beginning to get fed up with such high prices for transportation gas and substitutes are blooming before our eyes. What was an inelastic resource is quickly turning elastic. The low demand for oil has a lot to do with substitutes such as hybrid cars, different types of fuels, and alternatives such as bicycles.

What I think is strange about this article is how oil prices and supply is going down, but the quantity supplied is actually increasing. If the price goes down, the quantity supplied should go down with it. However, this is a positive outcome for the citizens of British Columbia. They should see gas prices decrease a slight amount and stay decreased for a longer period of time. Since the quantity supplied is still increasing and the price is low, this should mean that there are a lot of gas and oil while they are being sold in a lower price. Strange, but good for the public.