Miec
Detailed Analysis
Negative Spill over effect
On 20 April 2010, the Deepwater Horizon blowout preventer failed to function causing an explosion at “Mississippi Canyon Block 252 in the Gulf of Mexico” (Washington’s Blog, 2010).
The oil spill resulted in a negative spill over principle to the fishing industry, tourism, environmental. It was pointed out that “closed fishing areas included a zone off south-west Florida that includes waters just to the west of the Dry Tortugas, a small group of islands” Many tourists were scared to visit the five Gulf States: Texas, Louisiana, Mississippi, Alabama and Florida, due to the ruined environment. Besides, Louisiana Senator Mary Landrieu said that “120,000 jobs were threatened due to the new moratorium (delay or suspension) on deepwater drilling in the Gulf” (AFP, 2010, July 14).
Price Elasticity of Demand of oil
It was stated that “Price Elasticity of Demand measures the responsiveness of quantity demanded of a good to a change in its own price.”(MIEC lecture handout: Ngee Ann Polytechnic).
To measure if an item is price elasticity or not, we can use the following formula:
Ed= % change in quantity demanded / % change in price. If the magnitude of E is greater than 1 then it is price elastic. If the value of Ed disregarding the minus sign is lesser than 1, it is price inelastic. We can also determine the elasticity of good by using the determinants of price elasticity of demand which are availability of substitutes in consumption, proportion of income spent, time, habit and necessity against luxury.
Oil is a necessity good as it is needed for cars as petrol, to cook food, as airplanes fuels etc. Hence, people have to purchase it no matter how much the price of oil increases. Moreover, the price of oil only increases just a little. Thus the proportion of income spent is only a small part of consumers. Due to these two determinants of price elasticity of demand, we can determine that demand for oil is price
Negative Spill over effect
On 20 April 2010, the Deepwater Horizon blowout preventer failed to function causing an explosion at “Mississippi Canyon Block 252 in the Gulf of Mexico” (Washington’s Blog, 2010).
The oil spill resulted in a negative spill over principle to the fishing industry, tourism, environmental. It was pointed out that “closed fishing areas included a zone off south-west Florida that includes waters just to the west of the Dry Tortugas, a small group of islands” Many tourists were scared to visit the five Gulf States: Texas, Louisiana, Mississippi, Alabama and Florida, due to the ruined environment. Besides, Louisiana Senator Mary Landrieu said that “120,000 jobs were threatened due to the new moratorium (delay or suspension) on deepwater drilling in the Gulf” (AFP, 2010, July 14).
Price Elasticity of Demand of oil
It was stated that “Price Elasticity of Demand measures the responsiveness of quantity demanded of a good to a change in its own price.”(MIEC lecture handout: Ngee Ann Polytechnic).
To measure if an item is price elasticity or not, we can use the following formula:
Ed= % change in quantity demanded / % change in price. If the magnitude of E is greater than 1 then it is price elastic. If the value of Ed disregarding the minus sign is lesser than 1, it is price inelastic. We can also determine the elasticity of good by using the determinants of price elasticity of demand which are availability of substitutes in consumption, proportion of income spent, time, habit and necessity against luxury.
Oil is a necessity good as it is needed for cars as petrol, to cook food, as airplanes fuels etc. Hence, people have to purchase it no matter how much the price of oil increases. Moreover, the price of oil only increases just a little. Thus the proportion of income spent is only a small part of consumers. Due to these two determinants of price elasticity of demand, we can determine that demand for oil is price
References: -Audrey L.H.W. (2010, April). Microeconomics Elasticity of Demand (Price and Income Only) [Lecture handouts], pg 2. Retrieved July 14 2010, from http://mel.np.edu.sg -Audrey L.H.W -Audrey L.H.W. (2010). Cost Concepts, Accounting Profit. Theory of Production & Cost I [Lecture handouts], pg 8. Retrieved July 14 2010, from http://mel.np.edu.sg -Audrey L.H.W -Audrey L.H.W. (2010). Oligopoly [Lecture handouts], pg 1. Retrieved July 20 2010, from http://mel.np.edu.sg -Audrey L.H.W -Audrey L.H.W. (2010). Oligopoly [Lecture handouts], pg 3. Retrieved July 20 2010, from http://mel.np.edu.sg -Audrey L.H.W - AFP. (2010, July). BP oil leak bill increases, share price rises on assets sale talk. Channelnewsasia.com. Retrieved July 12 2010, from http://www.channelnewsasia.com/cna/cgi-bin/search/search_7days.pl?status=&search=BP&id=1069035 - AFP. (2010, July). BP hoping cap will end Gulf oil nightmare. Channelnewsasia.com. Retrieved July 12 2010, from http://www.channelnewsasia.com/cna/cgi-bin/search/search_7days.pl?status=&search=BP&id=1069217. -The Economist. (2010). Competitors. Yahoo.com. Retrieved July 22 2010, from http://finance.yahoo.com/q/co?s=BP -Washington’s Blog (2010, June 18). Washingtonsblog.com. Retrieved July 22 2010, from http://www.washingtonsblog.com/2010/06/visualizing-gulf-oil-spill-site.html - (2010)