Elasticity = ∆
% change in a dependent variable
While elasticity can be calculated and used for any two related variables there are four basic
Coefficients of elasticity used in principles of economics
OWN PRICE ELASTICITY OF DEMAND
This is a measure of the percentage change in the quantity demanded “caused” by a percentage change in price. Because the demand function is an inverse relationship between price and quantity the coefficient of price elasticity will always be negative: change in price change in Quantity Demanded
PED = %∆ in Demand
%∆ in Price
The price elasticity of demand (PED) is the relation between the change in the quantity demanded of a good and the change in the price of that good. The PED for oil is very low, since a major increase in price is required for the demand of oil to be significantly, moved. This situation is caused by consumer, such as plastic industries and almost every car-owner, being nigh-dependent on oil. In the same way, the demand will not rise a lot if the price is reduced, because consumers need only meet their own, limited needs. This low PED is partially caused by oil lacking a close substitute. There are of course substitutes to oil – e.g. electricity and synthetic oil – but these substitutes would require a substantial initial investment from the consumers, which is why the oil prices need soar before the demand is affected. Note also that in the long run, the PED for oil is probably higher, since consumers will be able to invest in the one-time cost for adapting to other sources of energy, e.g. electric cars.
OWN PRICE ELASTICITY OF SUPPLY
This is a measure of the degree of responsiveness of supply to a change in price. This is measured by % ∆ in supply
% ∆ in price
The primary determinant of elasticity of supply is marginal cost behavior. If MC rise rapidly for any extra out put. Supply will be in elastic. If MC rise slowly for extra out put then supply will be elastic.
MARKET EQUILIBRIUM PRICE AND QUANTITY
When the supply and demand curves intersect, the market is in equilibrium. This is where the quantity demanded and quantities supplied are equal. The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity.
PART 2
Jeff Rubin, Chief Economist at CIBC World Markets, in a recent , is now saying that the current recession is caused by high oil prices. Defaulting mortgages are only a symptom of the high oil prices. We should be blaming the underlying cause--higher oil prices--rather than the symptom. These higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn't be too surprised if they started this one also.
SECTION 3
Finally give your manager your view on how you think oil prices will move in the next year or so
PREDICTION:
By analyzing the historical data no one can predict the future. But I think that now the prices of oil will decrease because of the new prime minister of U.S.A. As he did already the prices of oil has been decrease very much just in 2 weeks.
We all know that oil prices are lower than they were in the recent past because supply is greater than demand. In fact, OPEC oil ministers are meeting this week to try to fix supply, so it will be more in line with demand.
All of this seems a little strange, though. We are going into the winter months, when demand for oil normally rises because many people around the world heat their homes with oil. We are using somewhat less gasoline in the United States, but apart from the hurricane disruptions, not very much less than earlier this year. While we are going into a recession, it doesn't seem to have hit with full force yet. What other factors may be involved in the current lower prices? In this post, I will discuss factors besides those we usually think of as supply and demand that may be involved.
ECONOMICS GCSE/KEY STAGE 4 ( LONGMAN GUIDE)
http://www.theoildrum.com/tag/oil_prices