Oil Prices Are Noticeably Going Up This Month
Name of the Market (Goods affected)
Oil is a fundamental raw material in the modern economy as oil products are significantly utilized in the manufacturing and transport industries. As a result, there are many goods and services which will be affected by the oil prices going up this month; these are sugar, meat, milk, etc. For the purpose of this project, beef will be picked to illustrate the effect of change in price of oil (Vaidya, 2008).
Relationship with the Event
The beef industry can be adversely affected by changes in the prices of oil through a chain of events. Feedstuff for animals reared for beef is manufactured by industries which highly rely on oil. Changes in the prices of oil will push up the prices for this feedstuff, eventually affecting the price of beef in the market.
Economic Analysis (effect on demand and supply of good)
A rise in price of oil leads to increased cost of production for animal feed which translates to an increased price of beef in the market. Depending on how much the oil prices increase, the effect on supply of beef is likely to be negative as the price of beef will go up prompting a decrease of demand for beef and beef products as they are likely to be expensive.
Graph (new equilibrium price and quantity)
In the diagram below, the supply curve is that of beef in the market and the demand curves are those of demand for beef by consumers. An increase in price of beef will prompt a decrease in demand for meat, and the equilibrium will be shifted to the left.
It should be noted that the above assumptions rely on how sharp the change in price of oil increases; if the increase is insignificant, then the above changes may not hold.
The Use of Corn in Making Ethanol
Name of the Market (Goods affected)
Corn is popularly used to feed livestock. It is also as human food as well as in ethanol production. Since approximately 96 percent of the corn produced is used for animal feed, animal meat products are likely to be affected by the above event (Mariano, 2012).
Relationship with the Event
Animals are fed on corn. The use of corn to make ethanol will, therefore, imply that there is an introduction of competition for corn, and this will push the price of corn upwards. Since the production of meat is dependent on feeding animals well, the event will directly affect meat products.
Economic Analysis (effect on demand and supply of good)
Use of corn in making of ethanol creates a competition for corn, and corn price is likely to go up due to an increased overall demand for corn in the market. Farmers will likely sell their animals at a higher price to recover the cost of production, and this will eventually be reflected in the final meat products. On practical terms, the demand for meat products will likely decrease as their prices rise. Due to a decreased demand for meat products, the supply of meat is also likely to decrease.
Graph (new equilibrium price and quantity)
The supply curve is that of meat products, and the demand curves represent the demand for meat products. Production of ethanol using corn increases the competition for corn, consequently pushing its price upwards; meat becomes expensive as the food for animals increases in prices, and this translates to increased price of meat products. This reduces the demand for meat products in market as shown below. The equilibrium shifts from right to the left as shown by the arrow.
The equilibrium shifts from right to the left as shown by the arrow.
Gas Prices is Expected to go Down Next Month
Name of the Market (Goods affected)
Gas is dominantly used in manufacturing of consumable products and in the road transport. The expectation that there will be a reduction in the prices gases the following month will attract the investors in the consumable market to make strategic moves to benefit from that reduction in prices of oil. Most of the industries that manufacture consumable products depend on gas. The public sector is also likely to make strategic moves in anticipation of the reduction in prices of oil (“Milk, beer, soap: Why the price of oil directly affects everything,” 2008).
Relationship with the Event
Since gas is required in the processing of consumable products, there is a likelihood that investors will prefer to carry out production at low costs of production, and this can be achieved by buying gas when the price goes down. Reduction in prices of gas will, therefore, imply reduced costs of production.
Economic Analysis (effect on demand and supply of good)
The expectation that gas prices will reduce in the coming month will make both the customers and the producers behave strategically. The customer may avoid making long-term purchases in the present, especially for the consumable goods, as they expect the prices of gas to reduce, and at that point, they will freely buy as much as they wish. On the other hand, producers are likely to release all the stock they have so as to sell it at the current market price and thus avoid making losses when the prices fall. This may create a mix up in the market whereby there will be more supply than that the consumers as well as producers, offload their warehouses. Taking note that the customers may not want to buy the gas, a reduction in price of consumable products due to the surplus created in the market will happen.
Graph (new equilibrium price and quantity)
Producers will panic and increase supply from S1 to S2 but because the customer will not be in hurry, this causes a surplus in the market which will push the price from P1 down to P2, implying consumers to get more goods at a low price.
The use of Crude Oil in Plastic Making
Name of the Market (Goods affected)
There are many products which rely on plastics made from crude oil, such as household items, sports equipment, equipment in the office, etc. Since crude oil is the major raw material for producing plastics, the products which are made of plastics are likely to be affected by this event (Heinberg, 2011).
Relationship with the Event
There is a direct relationship between the products mentioned above and making of plastic from crude. This is because the products are completed by the plastics manufactured by the event.
Economic Analysis (effect on demand and supply of good)
Since this event will be a continuation of what usually takes place, there is a likelihood of any changes in price, supply or demand for goods mentioned above.
Graph (new equilibrium price and quantity)
As already mentioned above, the status quo will hold.
The Price of Beef is Expected to go up Next Month
Name of the Market (Goods affected)
Meat is a perishable product, and if its price is expected to go up the coming month, there is likely nothing to be done; however, if meat producers may take advantage of this factor and double the volume of meat, they can cover for the following month when the product is likely to be more expensive (Korhonen & Ledyaeva, 2008).
Relationship with the Event
Can meat and the cost of can meat have a direct relationship because the cost of meat significantly determines the cost of can meat and the demand for it.
Economic Analysis (effect on demand and supply of good)
Expectation of increase in price of meat will lead to increase in demand for meat by the can meat processors, and in turn customers will also increase their household stock of can meat. Depending on the volume of demand by the customers, the price of meat cans may be pushed upwards. This will be due to the unexpected increase in demand for meat cans which will create shortages as the industry does not anticipate it and, therefore, is not prepared for such a situation.
Graph (new equilibrium price and quantity)
Demand for meat can increases leading to shortage in the market, and as a result, the price goes up.
The equilibrium is shifted to the right as shown above.
References
Heinberg, R. (2011). How Oil Prices Affect the Price of Food. Web.
Korhonen, L & Ledyaeva, S. (2008). Trade linkages and macroeconomic effects of the price of oil. Web.
Mariano, C. (2012). Ethanol Usage now Exceeding Feed Usage from Corn. Web.
Milk, beer, soap: Why the price of oil directly affects everything. (2008). The Telegraph. Web.
Vaidya, S. (2008). The ripple effect of high oil prices. Web.