Problem Formation and Identification

Essay by dumbofornowUniversity, Bachelor'sA+, April 2008

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Supply, Demand and Pricing � PAGE �1�

In the United States the economy is constantly fluctuating. There are many reasons why this influx in prices of supplies due to high demands is taking place. In this paper I will attempt to explain why and how these changes have and are still occurring in the supply, demand and price. I will explore the consistent changes in fuel prices.

Two of the most rumored reasons that fuel prices are going up is because of a shortage of fuel and marked up prices from foreign countries which are politically provoked. On average in the United States, fuel prices normally increase up to 6% in the spring and summer months due to families taking vacation and comfortable weather which is typically done before the spring and summer months. Coincidentally this is normal. Since oil prices are determined by worldwide supply and demand an organization was formed named OPEC (Organization of Petroleum Exporting Countries).

It was formed to persuade the stability of the prices of crude oil for the members of the organization whom control roughly 40% of the earth's production of the crude oil (Car Fuel, 2006).

Some of the true factors of the influx in crude oil are credited to havoc in the countries that produce the most world's oil supply. Some of these include the "Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990 (Car Fuel, 2006)". The amplified insistency for automobile fuels from car manufacturers, rising prices in importing the oil and deteriorating oil refineries are also to blame for overall unevenness.

If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, car fuel inventories (stocks) may decline rapidly. When stocks are...