Elasticity In The Oil Industry

Elasticity is the measure of responsiveness or sensitivity, elasticity can be defined formally as the percentage change in a dependent variable if the relevant independent variable changes by one percent. ( Mohr,P ,2008: 154) Elasticity is the term economist utilization to depict the amount supply or demands reacts to changes in price. In the event that a little change in value creates a vast change sought after, demand is said to be elastic . In the event that a substantial change in value creates a little change in supply, then supply is said to be inelastic.

Therefore, the length of time period that people have to respond to price changes also plays an important role. Demand tends to be more elastic in the long rung rather than in the short

But the differentiation. Although several grades of oil exist, a high-quality light crude oil – Brent crude from the North Sea, for example – is in effect the same as a light crude oil extracted from any other source and is recognized as such in the industry. So a price can be established for a given grade and this price is well known So the oil industry has a homogeneous product and ample market information – two of the key features of a perfect market. The implication here is that prices are closely determined by supply and demand. An increase in the demand for oil or a decrease in the supply of oil will inevitably lead to a price rise. The features of markets for other commodities and for shares and currency are comparable, producing similar results: single prices that may fluctuate daily according to supply and demand. But the fact that the nature of the market for oil causes daily price fluctuations does not explain their

Such occurs in the lower portion of the demand curve. If the demand is perfectly inelastic, quantity does not change at all. Thus A perfectly inelastic demand is vertical, for example consumers occasionally see certain items as necessities which then makes the demand for these items to become inelastic , because regardless of the change in prices these items are essential to our wellbeing thus consumers have to purchase those items for instance oil . Oil is inelastic on the grounds that it is an ordinary item which in economic terms its seen as a normal product, if the value goes up the customers will at present need to purchase it on the grounds that there are few substitutes, for example, the gas and the efficient power vitality, and the oil is need for the buyers. Be that as it may, any expand in the cost of oil won't prompt reduction in the utilization in substantial amount. In this point we can contend from two viewpoints Firstly, the buyer’s points of view: if the cost of oil goes up then the buyer will have a tendency to discover option to oil. Case in point, the shopper won't utilize their own particular transportation, they will have a tendency to utilize people in general transportation, however there will be some individuals who can bear the cost of the climbing costs, thus they will