Question

Answer the following prompts:

1. What are the reasons behind the decreasing elasticity of oil supply?
2. What should the U.S. do to increase the price elasticity of oil demand?

Answer 1

ANS

The price elsticity of oil supply is decreasing which means that the increase in price oil will cause less effect to the supply of oil. It is happening due to several crucial reasons , one of the reasons is less oil reserves that means the amount of oil reserves are a natural resource and are depleting and those are mainly located in the middle east which enables to the countries like saudi arab, Iraq etc to raise the prices to maintain the political influence and due tofact that no other supplier ,the other nations have to pay the price and because of which the elasticity of demand decreases and due to which the supplier supplies more into the prevailing price and it charges more from the consumer. The second reason could be the rise in dependency to oil , as now all the machienery and transportation majorly work on oil, so due to this necessary demand the price elasticity is less and the third reason is the less availibility of perfect substitutes, since time many of the renewable energies have been found and invented but none of them is as efficient as the oil or petroleum so due to lack of substitues the price elasticity is less.Also the the price elasticity of oil supply is decreasing due to increase in restrictions that are been pushed by the local authorities to maintain the sufficient level of supply into the economy.

ANS

US can do several things to increase the price elasticity , it can intoduce the world with new technology which would be a substitute to the oil, it can invest morre and more into the renewable resource of energy like hydra energy or nuclear energy and this would reduce the dependency on oil and would decrease the elasticity of oil. The investmentt or introduction in new technology would give world a new source of energy and this would be a substitute to the oil and therefore if the prices of oil increase due to any reason then the demand will decrease of oil and the demand of other substitutes will increase.