In The News: Oil Prices and Effects on Market Supply and P* & *Q*

Just today there was a news article on recent prices of crude oil on Yahoo! news.

Per the article:

Benchmark crude fell by 78 cents to finish at $98.78 per barrel in New York on Monday. Brent crude, which is used to price foreign oils that are imported by U.S. refineries, lost 71 cents to end at $110.75 per barrel in London. 

The Commerce Department said Americans kept a tighter grip on their wallets in December. Consumer spending was flat, even though incomes rose by the most in nine months. The economy relies heavily on consumer spending, and analysts say the economic recovery could stall and energy demand may stay weak if spending doesn't pick up. 

Meanwhile, Iran welcomed international weapons experts into the country in hopes of refuting claims that it is building a nuclear weapon. That eased concerns about possible military action in the region. Still, Europe plans to embargo Iranian oil this summer to pressure Iran about its nuclear program. If that happens, Iran says it could retaliate by blocking passage through the Persian Gulf, where tankers carry one-sixth of the world's oil exports.

The U.S. is ready to implement sanctions on Iran's central bank that will make it harder for Iran to sell oil.

Gasoline pump prices rose by a penny on Monday to $3.43 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 15.3 cents higher than it was a month ago and 33 cents higher than it was last year. [

[CHRIS KAHN, AP Energy Writer]

What is at work in this article are many of the factors influencing supply and demand for oil and for gasoline as well as heating oil.

Crude oil is an example of a land resource-a natural resources that's not made from human hands.  In recent readings and in class we've learned how a change in the cost of necessary resources can affect market supply.  Additional political actions between embargoes by the European Union against Iran, US strategies trying to make it difficult for Iran to sell its oil on world markets and Iran possibly trying to block the passage of other countries' oil tankers through the Persian Gulf constitute supply-side sunspot activity.

Questions for comments:  How do these disparate factors affect market supply for oil, as well as its equilibrium price and quantity?

Additionally, consumer spending has been said to be flat--as in not changing much recently.  Households have kept a tight grip on their wallets, despite gradual increases in income levels.  In recent readings and in class, we've learned about how income levels can affect the market demand for various goods and services.  Certain goods/services are more sensitive to changes in income level than others.

Questions for comments: Are gasoline and heating oil normal goods or inferior goods?  What would be the expected response in demand for gasoline due to an increase in income levels of consumers?  Are there any other non-price determinants of demand affecting the market?  Which one is having the stronger effect on demand for gasoline and heating oil?  Why is that the case?

To my students:  I want you all to give careful consideration to this article, the material covered in class and how it affects these markets.  Drawing graphs for S & D curves to illustrate it would be helpful.  I will post an update to this article during the weekend with my responses, but I want to see NUMEROUS student comments on these questions first.  This will help reinforce what you have been learning in your reading and in class meetings!

Success to you all!!!

Prof. Hank

Economics Professor Approved Television: Dragon's Den and Shark Tank

Economics Students and Readers:

In the first week of class, we learn about the categories of Economic Resources--Land, Labor, Capital and Entrepreneurship.  We define them, look at specific examples and explain how they are scarce.  The TV shows Dragon's Den on the CBC in Canada and Shark Tank on ABC in the US/CTV in Canada feature Entrepreneurs that are self-made multimillionaires and billionaires who are engaging in Venture Capital Investment.  Small entrepreneurs who have existing businesses or products go on these shows and make what we like to call an elevator pitch where they sell a portion of the equity in their firms in exchange for money to grow the firm and access to the Dragons'/Sharks' contacts and experience in order to help develop and grow their firms. Biographies of the Dragons and the Sharks can be found by clicking on the hotlinks in those words

Some of these small entrepreneurs ink deals with the Dragons/Sharks and end up growing and becoming very successful.  Others refuse the deal but are still successful thanks in part to their exposure on Nationwide North American Television.  Still Others offend the Dragons/Sharks and get rejected, and despite having a good product, end up failing.  Finally, there are always a few entrepreneurs who come on the show that are sloppy, unprepared and get mocked out of the room.

Below is a video from Dragon's Den where the owners of EthicalOcean.com are making a pitch regarding their online marketplace for sweatshop free, econ-friendly products and we see Jim Treliving, Kevin O'Leary, Arlene Dickenson, W. Brett Wilson and Robert Herjavec debate the merits of such an investment.

 


Below is Dougie Luv, the owner/operator of Dougie Dogs making a pitch on Dragon's Den very recently. Jim Treliving, Kevin O'Leary, Arlene Dickenson, W. Brett Wilson and Bruce Croxon send him away since his Total Revenue aren't profitable enough.   Jim Treliving is the majority owner of Bostons: The Gourmet Pizza in Canada, the US and Mexico, and his knowledge of profits needed base upon square feet of operating space is based on years of experience.  Dougie is invited to come back once he hits minimum targets set by the Dragons.



Last but not least, Donny McCall the owner and developer of the Invis-A-Rack cargo management system for pickup trucks appeared on Shark Tank this past Friday, January 27, 2012.  I can't post the video directly here, and he spoke with the Sharks at the very end.  However here is the Link to the Full Episode on ABC.com.  Note that Kevin O'Leary and Robert Herjavec are on both Dragon's Den and Shark Tank.  Shark Tank also includes Daymond John (founder and CEO of FUBU), Barbara Corcoran (a real estate mogul) and Mark Cuban (Owner of the Dallas Mavericks and founder of a ton of various businesses and enterprises).

I hope those of you that are not entrepreneurs can appreciate just how much knowledge, creativity and inspiration it takes to be one of the Dragons/Sharks, as well as one of the entrepreneurs that goes on the show and makes their pitch.  Also note: useful business and economics vocabulary appear in bold italic in these articles.

Success to you all!!!

Prof. Lewis

Welcome to my Economics Blog!

Welcome Students and Readers!

I have created this blog in order to provide other media to my students, as well as serve the colleges where I am a Professor.  If you navigate the blog, you will notice that in the sidebar, there are links to recent news of an economic nature, whether global, national, market, firm or consumer related.  Those links change on an ongoing basis, so check back often to find new articles.  There are also the most recent tweets from my ProfHankLewis Twitter account, which is used to post quick reminders and announcements for my current students.

The main articles in the blog will have relevance to current events in Macro- and Micro-economics, as well as my take on different news articles, television shows and current events of an economic nature.  All opinions stated in this blog are my own and do not represent the opinions of Lone Star College, Houston Community College, The University of Phoenix, my students, family or friends.

Thoughtful input or rebuttal is appreciated via comments on each article.  However those comments must be relevant to the subject of the article.  Flames and spam will be deleted.

Last but not least, anytime there are certain vocabulary words that are relevant to business and economics, I am placing them in bold italic in the articles so they can be identified by the student as such.  The reader can look those words up in an online dictionary, textbook or business guide themselves.

Thanks and I wish you all Success in your endeavours!

Prof. Hank Lewis, MS
Associate Professor of Economics
Lone Star College-University Park
Houston Community College System
The University of Phoenix