Oil+supply+'cannot+match+demand'+by+Venus

TITLE OF EXTRACT: Oil supply 'cannot match demand'

SOURCE: []

DATE EXTRACT WAS WRITTEN: May 12, 2004

DATE CURRENT EVENT WAS WRITTEN: March 6, 2012

EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE: The article shows that there were two perspectives regarding the issue of the increase in price of oil, and how oil companies should deal with the excess demand. Politicians and business owners were pressuring Opec to increase the supply of oil so that prices would drop. However, Opec responded by saying that this was not a lack-of-supply issue, since there was actually enough oil, but rather because of the increase in demand. When the demand curve shifts and the supply curve remains the same, a situation of excess demand is created. Therefore in order to eliminate this excess demand, it is necessary for price to rise until the quantity demanded once again equals the quantity supplies. The price of oil will continue to rise until there is no excess demand for it.

VOCABULARY TERMS AND DEFINITIONS:
 * Demand: The quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period.
 * Supply: The willingness and ability of producers to produce a quantity of a good or service at a given price in a given time period.
 * Spare capacity: Measures the extent to which an industry is operating below the maximum sustainable level of production.
 * Developed economy: An economy enjoying sustained economic growth and security.
 * Cartel: An association of suppliers with the purpose of maintaining prices at a high level and restricting competition.
 * Market: Where buyers and sellers come together to carry out an economic transaction.

DIAGRAMS:

EVALUATION: In order to make the price of oil more affordable, demand would have to be decreased. Governments could intervene in the oil market in order to decrease the demand of oil. This would mean increasing the demand for substitutes of oil. Nowadays many countries spend more money to increase alternative energy sources, e.g. nuclear power plants, electric cars, and biofuels. Developing alternative energy sources can alleviate the problem of excess demand for oil. As more sources of energy that can substitute oil are available in the market, the demand in oil will decrease. Furthermore, in a lot of countries, governments set fuel efficiency standards, which regulate the production of fuel-efficient cars that use less gas.