Question

Discuss the role of the forces of Demand and Supply in gas prices. Use examples. Comment on OPEC..Organization of Oil Producing Countries

Answer 1

There is an ever-increasing demand for crude oil and gas in industrialized countries around the world. The demand follows the law of demand where more is demanded at low price. The supply is majorly in the control of Oil producing nations who have a certain amount of power over the price and supply of crude oil. Members of the Organization of Petroleum Exporting Countries (OPEC) often limit the amount of oil they produce to keep the prices up.

The prices of oil will fluctuate due to change in supply and demand. When consumer demand for a commodity rises, the supplier will meet that demand at a higher price. In the gasoline market, OPEC will raise prices to meet the increased demand for fuel by the traveling public. This is shown in figure 1. On the other hand any decrease in the demand will be accompanied by decrease in price charged by OPEC. Any factor that leads to decrease in supplies causes the suppliers to raise the price due to the scarcity of the resource. This is shown in figure 2.