Supply, Demand, and Price Elasticity Paper
Learning Team A
University of Phoenix
Petroleum is a necessity for the majority of humans across the world. Petroleum is a natural resource that has few competitors. In recent decades alternative energy sources have been investigated, but the use of petroleum is still ahead of the game as the world’s primary energy source in the use of automobiles, but petroleum is also the main ingredient in plastic. We use plastic everywhere, the structure of our cars, furniture, computers, toys, and the list is endless. Petroleum is also an ingredient in many fertilizers, used in clothing, and carpet backing.
To understand the shifts of supply and demand of petroleum we must understand the cost and effort of retrieving petroleum from under the Earth’s surface. Oil wells are drilled as deep as six miles into the Earth to search for petroleum. The cost of these oil wells is well into the millions of dollars. When a drilling site has been dried out research needs to be done to find a new site and this is an expensive venture. The leading producers of petroleum are Saudi Arabia, Russia, and the United States; because 80% of this natural resource is found in the Middle East they have the majority of the control on the price of petroleum and being at war with the Middle East raises the price that Americans pay at the pump. In 2001, in the state of California, just before 9/11 the cost per gallon of gas was $0.89. Today we are seeing prices over $3 a gallon. This is an increase of 200% since we went to war. Petroleum is a fossil fuel that is a non-reusable resource. Once, the fossil fuel is gone there will be no more.
We also see an increase at the gas pumps during the summer and holidays. Oil companies realize that more traveling will occur during these times and demand runs high. When demand for a product is high then the price will rise as well, knowing that the public has little choice, but pay because it...
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