Oil Prices: Demand and Supply

Case Readings:

Anderson, R and J. Buol (2005). "What is Driving Oil Prices." The Regional Economist. The Federal Reserve Bank of St. Louis. Retrieved on February 17, 2011

Using the case assignment readings, answer the following questions in 4-5 page essay.

1. What are three factors that might explain why oil prices are high?

2. Which two countries are the largest consumers of petroleum products?

3. Explain what happens to price and quantity of oil when the following events occur:

a. The rising popularity of hybrid vehicles.

b. Political conflict in the Middle East.

For each event, you must specify how it effects either demand, quantity demanded, supply, or quantity demanded. It is also important to demonstrate how the change will affect the market demand or supply curve. Also, be sure to state any assumption you are making regarding the relationship of the event and oil.