Sunday 7 July 2013

Supply of Petrol


Prices of petrol are increasing throughout the year in most countries. The fluctuation is mainly influenced by the cost of crude oil, but forces of supply and demand can also affect the petrol prices significantly in the short term.  


The cost of crude oil, also known as petroleum has increased at a significant rate over the past few years. This is due to the increasing global demand yet limited oil production capacity. The shortage of supply can also occur when the oil producing regions are facing continuous political instability as seen in the Middle East.

The graph above shows the market of petrol when the supply suffers shortages and the demand increases. The shift from D1 to D2 can be deduced as an increase in demand while the shift S1 to S2 is the decrease in supply. It is clear to see that the equilibrium price of petrol increases significantly from P1 to P2. Although there's an apparent decrease in supply, the equilibrium quantity increases from Q1 to Q2 due to the fact the  increment of demand is too great compared to the shortage supply of petrol.

The price of petrol is going to increase even more as the resources are depleting each year. No one knows for sure what will happen when we are out of petroleum one day. What do you think? 


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