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.
4 comments:
After reading your blog entry regarding the oil crisis in Venezuela, I too agree with you that if a recession is expected, then consumers can also expect incomes to go down which will lead to a lower demand for oil. I also agree with you that reducing the supply of oil is not going to be the answer because at the end, it’s going to bite back and hurt the citizens of Venezuela the most. Personally, I think the Venezuelan people should seriously reconsider reducing the supply of oil because I’m pretty sure they are not the only country that is suffering from an economic recession because the recession is global. Maybe they should wait for awhile and then decide whether they are making a good choice or a bad choice because Venezuela depends heavily on their oil supply.
E. Leung
Blog Topic—Venezuela expects OPEC to cut supply
The reason why the recent recession has dramatically lowered the oil prices around the world is because of the lower demand of oil, in turn there is an abundance of it. For the Venezuelan economy, I believe there is less demand for oil is because when the economy is in turmoil, productivity is also down. When productivity is low, the export and import of goods will be on a decline, which means businesses will demand for less oil to transport the goods. Furthermore, when jobs are being cut and investment savings are shrinking, Venezuelans will not want to go on vacations and travel around. This means there will be less air flights and therefore lesser demand of oil. In this case, cutting the supply of oil will not work because once the economy is hot again, the price of oil will shoot up even more drastically. Cutting the oil supply is a short term solution, so the Venezuelan government should start looking at other resources to fund for the poor.
Jason Tong
The global recession has indeed affected the demand for oil of the consumers. People are no longer willing to spend their money to buy gas. As the price of gas continues to go up, it would be logical that the demand would decrease since oil is an elastic product. As a result, the price of gas should eventually decrease. However, cutting the supply of oil will cause gas prices to maintain approximately at its current price. By doing this, Venezuela will be able to retain the revenue needed for its citizens. However, I believe that in the long run, cutting the supply of oil is not a wise decision.
Moreover, if the price of oil does not go down, the citizens of Venezuela may find it hard to run their businesses, and the number of bankruptcies may increase.
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