Market Equilibration Process Paper

Market Equilibration Process Paper

Robert L. Cooper

ECO561 / Economics

8/31/2015

Dr. Mathew (Somerset) DePoint

Market Equilibration Process Paper

Market Equilibration is the process by which the quantity demand is equal to the quantity supplied (McConnell, Brue, & Flynn, 2009 p. 54). This paper will focus on the author’s real world experience in the automotvie fules industry where a change occurred in supply or demand resulting from world events that led to a shift between the two equilibrium states.  

O.P.E.C. Oil Embargo

The Arab-Israeli War started in 1973.  The United States supported Israel over the Arab nations.  As a result, the “Arab member of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States in retaliation (US Department of State Staff, 2013, p. 1).  

The shift between the supply of the product, oil, and the demand for the resource brought about an “upward spiral in oil prices with global implications” (US Department of State Staff, 2013, p. 1).  Not only did this affect the price at the pump, but also other oil related products and services were impacted.  This brought about the end of the corner gas station garage and gave rise to a new industries like fast lube centers.  

The consumer thought processes shifted as well.  This began the increase focus on conservation of oil and other resources to include a call for reducing the nation’s dependency on foreign oil.  “Partly in response to these developments, on November 7 the Nixon administration announced Project Independence to promote domestic energy independence” (US Department of State Staff, 2013, p. 1).  Thus a gradual reduction demand and  in the dependency  on Arabian Oil.

Surplus and Shortage

A surplus is created when there is more of one thing or another.  A shortage is created when there is less of one thing or another.  There can be an surplus of product, such as oil, that can impact the market value of oil and the costs of production of petroleum products.  There can also be a surplus of demand for available resources, such as oil, that can drive prices up.  The same can be said for shortages.