Commodities

Question 0

In the long run supply is said to be…

Answer 0

Supply can change over time and become more elastic in the LR

Question 1

In the short run supply is said to be…

Answer 1

Inelastic

Question 2

Why is supply said to be more elastic in the LR?

Answer 2

As in the LR there is time to build refineries and settle any industry debates

Question 3

Why is demand said to be extremely inelastic?

Answer 3

Demand does not change as oil is an necessity

Question 4

Why is supply said to be inelastic in the short run ?

Answer 4

As supplies take time to get to markets - oil must go to the refineries first ( there is a time lag as this takes aprox 3 months) also there may be full capacity and won’t be able to refine the oil

Question 5

Give six reasons why oil prices rose after 2000?

Answer 5

OPEC
Rise in demand from India and China
Buying futures (commodities)
Higher taxes
US strategic reserve (storage)
Terrorism and war

Question 6

Four reasons why oil prices were higher beyond 2004?

Answer 6

Increase demand from China and India
Uncertainty - political uncertainty?
Specific events i.e weather related
Speculators

Question 7

Four possible consequences of high oil prices?

Answer 7

Inflation 
Increased withdrawal from circular flow of income 
Recession 
Impact on monetary and fiscal policy 
"Fuel poverty"

Question 8

What percentage of price is tax (VAT and excise duty) in the UK?

Answer 8

77% of price is tax

Question 9

“The greater the qty the greater the tax” which tax is being described?

Answer 9

Ad valoren tax (% tax)

Question 10

1p off duty is equal to… (Cut in fuel tax)

Answer 10

£0.5bn in tax revenue

Question 11

A cut in taxes can lead to…

Answer 11

Less revenue –> less spending and an opportunity cost arises

Question 12

At what price did OPEC miscalculate supply and demand in the late 90’s?

Answer 12

$10 p/b

Question 13

After the price rise in 2000 what price did OPEC want to maintain?

Answer 13

$22 - $28

Question 14

OPEC produces most of the oil in the world… what is their % of world production?

Answer 14

40% of world production

Question 15

How does the US strategic reserve work?

Answer 15

US buy up and store oil; if there was no more oil imported the US could last aprox. 6 months

Question 16

Why has there been a rise in demand from India and China…

Answer 16

As they are industrialising and using more oil

Question 17

The price of oil in 1999?

Answer 17

$10 p/b

Question 18

If there is uncertainty…

Answer 18

People will start to buy up oil ahead of the price rise

Question 19

Why high oil prices increases withdrawals in an economy

Answer 19

As most countries import oil - importing same volume (as demand is inelastic) of oil for more - outlay doubles - more money flowing out

Question 20

High oil prices can lead to a recession

Answer 20

As there is an opportunity cost - spending more on oil/fuel and less on other goods and services

Question 21

“Fuel poverty” is said to occur when…

Answer 21

More than 10% of your budget goes on fuel