Chapter 2 Blog
Link: http://www.canada.com/vancouversun/news/story.html?id=fbbda0f0-d7a4-46f5-9725-26c667b5edff
Summary
The representatives of OPEC and the Minsiter of Venezuela's economy will be discussing the oil crisis at an emergency meeting Oct 24. It is expected that the supply and demand of oil will be balanced inorder to put a stop to its decreasing value. OPEC's president said that a cut is likely and Qatar's oil minister believes it will be around 1million barrels a day. Oil prices which were at a high of $150 a barrel in July has dropped considerably (less than half that this week) largely in part to a feared global recession. Hugo Chavez, leftist president of Venezuala relies on oil revenue in order to fund the costs spent on the poor of his nation.
Connections to Operation of a Market
A global recession can lower the demand of any commodity because it affects important factors of demand (the income of the consumer and the expectations of future incomes). If a recession is expected, then consumers can also expect incomes to go down therefore there will be less of a demand for oil. Another key component in the chapter that should be mentioned would be the theory of increase in supply if price increases. The inverse of this statement holds true in this situation, as prices decrease then the supplier will respond by lowering the supply in order to offset the demand.
Reflection
The recession is beginning to take its toll on the other markets in the world. This decrease on the demand for oil will have its effects in Venezuala because its revenue is needed to fund the aid to its majority poor. This is also why countries or any state, or province should have more than one commodity to be the backbone of its economy. Take the maritimes of Canada for example. In the maritimes, fishery is the main economic stimulant, but if the demand for these products start to decrease than the economy will become unstable. With regards to the oil situation, I think the decision to reduce the supply of oil will not solve the problem because this is more of a demand oriented problem.
