A question for an <span title="economist................?">economist...................</span>

Question

Since the price of crude oil has been rising, I've heard that new supplies of oil are being developed. If this is true, then can we expect that the U.S. will eventually experience an oil crash? Why or Why not? And if so, how low do you think gas prices will go? Details=10.

Answer 1

If new supplies are developed and they are more than the demand for oil then yes prices will drop but there will not be an oil crash because over time we will become accustomed to 3$ or 4$ for a gallon of gas... companies will lower prices but they will not crash to the level they were in the 90&#039;s. I would expect a gallon of gas to drop to around 2.5$ for a gallon of gas if the demand for oil is exceeded by the quantity of oil

Answer 2

price will be determined by supply and demand.  there is no definite answer to your question.  here is what you can say for sure.

1.  increasing supply will TEND to lower price.

2.  decreasing demand will TEND to lower price.  

There is not a 1 to 1 relationship between % changes in supply and % changes in price because demand for oil is very elastic, and is tied to other factors.

Economics cannot answer your question.  Economics is the study of the most efficient utilization of scarce resources in the production of goods and services.

Aggregate demand cannot be rationalized.  Changes can be predicted by tendencies, but actual levels cannot be strictly ascertained.