Problem

Oil price in the US has been increasing for the past few years. This is due to the increasing price of crude oil per barrel in the world market.

The increase in the prices of oil results in the increase of the prices of basic commodities.B. Adjust Supply1. Describe intended results.

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Using the law of supply and demand, we can increase the supply of fuel higher than the demand to reduce the prices of oil. This can be achieved by finding more natural crude oil, or making the mining of oil more efficient. The increase in the supply of fuel will force the other suppliers to reduce their prices in order to be able to sell until supply and demand reaches a point of equilibrium.2. Describe possible negative consequences.

Over production of oil beyond the demand required by the consumer will cause too much oil forcing the supplier and eventually the retailers to lower their prices too much until their profit reaches a critical minimum. When suppliers and retailers eventually earn less and less until they do not profit at all, this will also have some serious effect in the economy.Technically this condition of more supply of fuel than the demand will never happen because population is always increasing, therefore the demand of oil will continually increase. The other serious consequence is that as we continue to increase the supply of fuel to match the growing increase in the demand, we have to take into account the growing increase in pollution due to the smoke discharge. This increase in pollution will have serious effects on health and the life of other natural resources such as plants and animals. These effects on other natural resources and health would cause an increase in the prices of the other commodities dependent on it.

These increases in prices of other commodities might eventually pull up the prices of fuel to a higher degree.C. Adjust Demand1.

Describe intended results.Using again the law of supply and demand, we can decrease the demand of oil lower than the supply to reduce the prices of oil. This can be achieved by producing alternative fuel such as bio-diesel or ethanol, using more fuel efficient machines, use of hybrid cars (part battery part gasoline), or simply reducing the use of gasoline (and/or crude oil) powered vehicle. This decrease in demand will cause the supplier of crude oil to decrease their prices per barrel in order to sell until equilibrium of supply and demand is met.

2. Describe possible negative consequences.Decreasing the demand of fuel beyond the supply may cause the suppliers to loose business or cut down their production of oil. This reduction in profit of oil suppliers within the United States may cause effects on the overall economy.Presently, it is almost impossible to reduce the demand below the level of the supply because of the increasing population which causes an increase in the demand of fuel. The only possible way for this condition to occur is to find an alternative fuel which can be manufactured in large quantity and sufficient cost to maintain the demand. The alternative fuel will cause economic problems to countries that are dependent on the sell of oil.

The control of fuel will shift to the countries with the raw material and technology to create this alternative fuel.