Economic Practice Coursework Essay

My choice of article is the one relating to the oil crisis in Libya, and how it affects the economy of other countries. The article discusses the impacts of the oil cut of Libya, supplying it no more. It starts off by talking about the impact on shares and the price of oil barrels, which is the fastest and direct impact of the oil cut. As supply from Libya territory stops, supply to the entire world is crippled, as Libya is one of the countries that supply most worldwide used oil. As it stops supplying, it shifts the supply and demand graphs completely. In a short term, supply shifts to the left, as it is less. In doing so, for the same amount of oil, the price has gone to a higher figure. By doing that, the shares index of the western countries, such as European countries and the US have dropped, because of the adjustment via disposable income. That happens because of the effects of the shifting of the supply curve. As the price goes higher, the general public have less money to spend on the economy and firms, decreasing the firm’s profit, damaging that countries’ economy. That’s the reason for the index to go down, and that’s an example of mid-term effects of the oil crisis. In the midterm effect, the demand for oil will decrease, as people will cut back on the oil, and look for alternative routes. On the long term, the demand for the cars will decrease, as people will not want to buy cars, and try to sell their cars. This will affect the economy drastically, as the car companies are a big part of that countries’ economy. The general public will search for alternative routes to travel, as oil prices are higher. The car companies will have to spend much more money on researching alternatives such as hybrids and electric cars which are starting to appear. The public transport system will benefit from this situation, as more people would want to travel via train or bus, as it is much cheaper and faster. The government would get more money from this, so it would improve as much. The oil companies would want to drill and search for oil in more remote areas, causing more deforestation, and much more money spending by the companies and time. Thus some small oil companies will be closed down due to the high demand of oil, as they can’t compete with the oil monopolies. The oil monopolies will also be affected, as some major companies’ oil supply relies a lot on Libya’s supply. Regarding the oil companies, they had to pull out staff from troubled countries, not only Libya, but other countries that are getting affected by that state, and are choosing to cut off supply as well, such as Saudi Arabia and Kuwait. As they do this, the productivity drops to zero in those countries, and there is a high chance of the companies losing contact with their oil. The unrest in Libya may affect the Saudi Arabia, and that concern is affecting a huge majority of stock holders and companies, specified before, changing the stock markets, especially the European and Asia. Relating to airlines, as the supply and demand graphs change, the oil supply for airplanes gets crippled, so more money has to be spent to get the same amount of oil, making the costs bigger, resulting in a bigger price for the customer for the same flight compared to before the whole situation. There is also a chance of investors backing out from the airline business, resulting in smaller profits for the companies and much more monetary issues.