Economic Problem: Scarcity Answers | Assessment Answer


Simple Supply and Demand

The utilisation of various productsincludes crore of millions of population,  who individually can limited the power to effect the cost of goods, but combinedly have plenty of power to influence it. The solution will definitely won’t shock you: (Foreign countries) Saudi Arabia. But the very close runner-up might: The (USA)United States of America creates more than 11.11 million barrels every day, which can be more than 95% of what other foreign countries like Saudi Arabia produces.  If comparing Russia which is close behind the (USA)United States. The world's 2nd largest economically rich country china, is a distant fourth.With oil's stature as a highly demand global product comes the possibility that various and major changes in cost of goods have a very significant impact on the economic of the country. The two basic factors that affect the cost of oil.(December 4, 2014)(Blitzer, December 4, 2014)

  • demand and supply
  • market condition

Demand of oil

The concept of supply and demand is not supply falls (or demand rises) the price should go demand falls (or supply rises) the prices oil future contract is a agreement that gives the authority to buy oil in barrels at a predetermined price on a predetermined date in the coming future. (al-Naimi, April 20, 2015)

 Oil scarcity

Oil scarcity can be caused by various factors, including technical limitations etc. this resources of oil is scarce when the supply exceeds demand. increasing demand rises pressures on supply of oil and creates scarcity in the market. The world ‘s supply of oil is not unlimited to existing demand and the ability linked to oil scarcity because there are always many factors involved ,but they certainly play a role. One issue is a permanent supply shock. A best example might be a earthquake that destroys oil refineries, distribution places and pipelines in a region that makes large barrels of oil.this cause oil scarity because any other facilities are not able take over soon as these facilities get back and normal distribution starts, supply return to predetermined levels.preparing for such cause are difficult ,as it involves planning ahead about problems that are difficult to think.(TOMAS HIRST, MAR 10, 2015, 06.46 PM)

On each supply and demand graph drawn and shift of the demand and supply curves are to indicate the influence of the market for oil.the below given graphs indicate the demand and supply of oil in the world indicates the quantity price relationship of oil.the following are the reasons of increase and decrease of demand and supply of oil.(WASHINGTON, Apr 11th 2011, 14:07)

The growing popularity of different vehicles like cars, autos, buses.                                                                                           

The rising use of plastics to produce a huge range of commodities.

A slowdown process in the production of oil through out the world i:e the globe.(Mullainathan, September 4, 2013)

Continuous action that allows to drill the oil i:e oil drilling operation in more areas of the Alaskan preserve.

Downward sloping demand curve of oil

Upward sloping supply curve of oil

Equilibrium condition of oil in the world market.

Equilibrium in the oil market.

Increase in Demand Oil

Incrreased demand from one country moves the demand curve of snother country to the right to which it is dependent on both price and quantity of oil sold increases

New equilibrium in the oil market.

Decrease in Demand Oil-

Decreased supply caused by turnoil in the oil producing countries moves the supply curve to the left-the price increases,but the producing of oil sold decreases.

New Equilibrium in the oil market.

The forces of supply and demand of oil that lie in the economics is the plan main point.In an economy (assume the whole world as an economy),these forces taken out by decisions of consumers and sellers set the price and quantity of the oil.The interaction and the communication between the buyers and the sellers of oil creates the equilibrium in the market where the price and the quantity are generally accepted


Buyers exhibit both willingness and ability to purchase products may vary in response to price.demand is a record of how people’s purchasing manner change in responce to is a whole series of quantities that consumer will buy at the different price levels at which they make these purchase.A demand curve is a device that shows the relationship between price and quantity in the market from the consumers viewpoint.the demand curve is downward sloping to the right because as the price increases.The demand curve can shift to the right or left as conditions in the maketchange.non price determinants of demand cause these changes. Their willingness to purchase goods and services.

1)Taste and preferences :The use that a good or service provides can easily change and  demand is affected by this or ughly,healthy or dangerous now can become its opposite.due to proper taste and preferences the consumer is able to demand correct goods and the suppliers can supply th demanded commodity.(Emma Ujah, on March 04, 2015)

 2) Income- Having more or less to spend affects individual demand schedules for most goods an increase in income leads to a rightward shift in the demand curve.For “inferior” goods an increase in income leads to a rightward shift since these are usually low quantity items that people will avoid when they have more to spend on the other commodity .this helps them to buy more of that commodity at lower prices. Income plays a very important role in the life of the buyers because they can only purchase those things which comes in their income budget and over budget things have to be left irrespective of their preference. Demand of anything get affected by the income level of the consumer to the great extent.

3) Substitutes : when the prices of preference for a substitute changes demand for the product will change. Substitute affect the price of the product in great way. It is the only way to keep the price stable and constant.  If the price of the product increases the other will fall automatically, and demand for the product of the decrease price will increase automatically and vice versa.

4) Complementary goods :This is the other factor which affects the demand and supply of the product in the great way, price and quantity of the product is very much affected with this section, the linkage of the products that work with each other can affect the demand for each product. If demand for the increase than price have to be reduced for maintain its consistency.

5)Price expectations of buyers:This criteria is very essential for the life, price affect the customer a lot, until it is stable it will affect the purchaser in a great way. Purchase may be postponed or fall down in present situation if it is analysed that the price will fall in the future and purchase can be increased or rushed to the great extent if it is analysed that the price will rise in the future then people will go and buy the products now with the hope that it will raise in the future, depending in the expectations of future rise and fall of price, expectation of customers changes a lot.

6) Number of buyers: demand depends on the size of the market. The more the number of buyers or users more will be the demand of every product. Demand is always dependent on the size of population. Only population size can increase or decrease the price of any goods or product to the great extent.

7) Availability of customer data:  Any Information about the price and the benefit and the cost of a good or service may be scarce and may effect the demand for that good or service.Information of the customer with their preferences is also very much essential for the customer for the price determination, what customer like and what they don’t required for the daily life is very important to know for the determination of price of anything.


Suppliers sell finished commodities or services.

Supply is the quantity og good and services that businesses are willing and able to produce at different prices during a certain period of time.

Supply is a record of hoe business’s production habits change inresponce to price.

A supply curve is a diagrammatic state that clearly depicts the very close relationship between price and quantity n the market from the sellers viewpointthe supply angle in this case is always upward sloping, from left to right because as the price changes the quantity supplied changes this direct relationship ,which makes sense because sellers will not offer as much for sale at lower prices since profits is their motive the supply curve can shift to the right or left as condition is the market change.non price determinants of supply cause these changes.

Future price expectations: producers confidence in the future often difficult to quantity or justify affect the amount of a commodity or service that they are willing to produce.

2)Price of goods using same resource: A demand for a specific resource is increased when other producers bid up the price in responce to increased demand for their product.

Time needed for production – In a market period no additional product can be generated so quickly. So it is best for the company in the short run only variable costs can be changed toenable producers to supply more of a long run all cost are variable and many amount of new resources can be added.

Production cost: this is the most important and the most typical reason for change.the price of incredients capital goods rent labour change moves the supply curve.New technology could make productions costly. A demand for a resource is  increased when producers bid up the price to increased demand.

Number of sellers- businesses enter and exit market regularly based on variety of changes in the no. Of producer will affect the supply of the product.

Changes in technology: New innovations in capital resources can change the average cost of production.

Taxes and subsidies: taxes increase cost and subsidies reduces the cost.

Achieving Equilibrium

Where the demand and supply curves intersect is the equilibrium that determines the point at which price and quantity sold are determined.due to the determination of the price os the goods both the buyers and sellers are able to buy the sell goods.

Equilibrium is the price towars which market activity moves.if the market  price is below equilibrium the individual decesions of the buyers and sellers will eventually push it upward(scarity of thr good will cause its price to be bid up by those who are willing to but good.)if the market conditions immediately or in future price and quantity will move towards equilibrium as buyer and seller intuitively and logically carry out the laws of demand and supply.the ability of the competitive forces of supply and demand to establish a price at which selling and buying deceisions are consistent is called the rationing function of price.


Like other products oil prices are not tatally determined by demand supply and market condition towards othe product.if the market conditions immediately or in future price and quantity will move towards equilibrium as buyer and seller intuitively and logically carry out the laws of demand and supply.

Crude oil is always polished to extract various fuels such as diesel and petrol, industrial chemicals. Industrial action incur its growth to oil. It is the most important scarce resources, and still there are rare cost effective alternatives to oil for producing vehicles fuels like petrol oil and diesel oil. Externalities can be said as discharge over effects. It can also be said that it is the cost or utility that affects a party who did not choose to incur that benefit or cost.

 The externalities can be negative or external cost or external diseconomy and it is the cost that is always bear by the other party as a result of economical issues. Usually in most of the transaction the producer is always the first party and consumer is always the second party and any organisation, individual, owner, property and resource that are indirectly affected are the third party. Externalities occur in many ways in daily life, sometimes they are small and little and sometimes they are big. Negative externalities can be referred as external cost. Some external factors arises from the consumption are waste and some other are carbon emissions from  various factories, that comes from production. There are many such external diseconomy which are related to the environmental consequences of production and use. Example of using negative externalities are not having sound sleep due to others listening to loud music till mid-night. For instance- if any individual people consume alcohol daily and harm to the property of the innocent third party this cause the negative consumption of externality. (Dolan, Tue, 08 May 2012)

External cost from consumption occur when negative consumption externalities lead to a situation where the social benefits of consumption is very less than the private benefit. The externality consumption can be positive also. It is also known as external benefit or external economy or beneficial external economy. And it always have the good and  positive effects on the  work imposes on an unrelated party. Similarly to the negative externality, it can arise either on the consumption side or on the production side. Example of positive consumption are one where in an area that does not have a public fire department, house owners who purchases private fire protection services provide a positive externality to consumption of oil, which are less at risk of the protected neighbour fire spreading to their unprotected house. Externalities always occur when actions or working condition of  one party always effect the other party working conditions. When taking into consideration the prices of the energy, there are three basic consideration that should be kept in mind-Solar energy, Bio-gas energy and Wind energy should be more frequently.

Allow more use of bicycles and separate pathway should be made for this purpose.

More use of various resources and policy framed by the government should be such that help to deal the consumer with the increase price of the oil globally.(Contributor, February 23rd, 2013)

Increase in the use of petrol will also help in the reduction of price of the oil which will ultimately help in the saving of the oil for future consumption.

The consumption of energy in India is the 4th biggest place in the world. Total energy consumption for the quantity of oil is limited. If any engine consumes less than a quart of oil every 3000 miles is in very good working condition and if it consumes less than 1500 miles, it can be said that still it is in working condition and if it crosses 1000 miles then it signifies that the retirement period of the engine is nearby. Consumption of oil excess then the normal limit clearly shows that the engine is having the problem. World scientist of the world should invent some alternative source of energy to prevent excess consumption of oil and its utility can be used by our next generation. Nitrogen can be replaced by fuel or oil because it is the best alternative for such consumption, for saving the oil bio-gas can also be used as it is also effected for its use and can be tested easily for the modification. Increase in the price of oil and increase in the demand of the oil have put the energy companies to restore oil in uncertain situation or location like the deep-seated water of the ocean (Gulf of Mexico). But the latest deep-rooted water of the ocean has put the question about widening drilling and led to decrease the demand for oil. Here, experts are always trying to explain how we can reduce the oil consumption by using the alternative source. Combination of improved flaming engines, shifts from the original to hybrid oil using engines and faster and more used of biofuels can recover the transport solution. If it was mixed with enhanced onshore production of oil, from carbon-dioxide increased oil recovery. The increase cost of oil is now widening the global economy and its reduce price will always help the consumer of oil.(Arbury, April 24th, 2011)

The combination of hydro carbons that remains present in the liquid state in the reservoir in underground and stay in liquid state at atmosphere pressure after passing through ground facilitating separation. Confide upon the features of crude stream it can be assume that the hydrocarbons that present in the gaseous state in the underground are liquid in state after recovering it from oil well and are subsequently mingle with crude stream without measuring separately.

Nuclear disuse and its security enhances important issues and infuse critical promises. The limit in which externalities occur in not measureable. Externalities need to be sort out for better society in the India.

Government need to promote the alternative source of energy very rapidly which will benefit both the consumer and producer in all the aspect. Price is the other factor which gives pain to the consumer, that means the alternative source of energy should be of such a price that the consumer can easily pay without hesitation and which will benefit for the consumer and will not feel like requirement of oil or petrol.(Riley, 20th December 2014)

For the continuous use of solar technologies there need the analysis of up stream work that count the possible changes. There is also better need to understand with the externalities, its causes for reduction, and it should be always keep in mind that externalities should not be wasted at any cost. There should be such alternative source of energy used for driving vehicles so that oil consumption should not be overburdened.


al-Naimi, A. (April 20, 2015). Ali al-Naimi says Saudi oil production near record high in April. Ali al-Naimi says Saudi oil production near record high in April, 1-1.

Arbury, J. ( April 24th, 2011). TRANSPORTBLOG. the economic impacts of oil scarcity, 1-1.

Blitzer, D. (December 4, 2014). The simple economics of supply and demand suggests oil will not be back @ $100 soon, 1-1.

Contributor, G. (February 23rd, 2013). Clean Technica. The External Costs Of Fossil Fuels Are Large, 1-1.

(December 4, 2014).

Dolan, E. ( Tue, 08 May 2012). An Economic Analysis of Fracking, 1-1.

Emma Ujah, A. B. (on March 04, 2015). VANGUARD. Real causes of fuel scarcity, by Okonjo-Iweala, 1-1.

Mullainathan, S. (September 4, 2013). THE ECONOMIC TIMES. Scarcity and decisions, 1-1.

Riley, G. (20th December 2014). TUTOR2U. NEGATIVE EXTERNALITIES, 1-1.

TOMAS HIRST, T. H. (MAR 10, 2015, 06.46 PM). Business Insider India. The supply and demand explanation for the oil price crash stinks, 1-1.

WASHINGTON, R. |. (Apr 11th 2011, 14:07). THE ECONOMIST. Oil and trouble, 1-1.

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