Dismiss Notice
Join Physics Forums Today!
The friendliest, high quality science and math community on the planet! Everyone who loves science is here!

Impact of recession and oil price increase

  1. Jul 13, 2010 #1
    Hi
    I was just wondering if anyone could please help me, I was just wondering what would happen to the supply curve if;
    1. There was a recession.
    2. And if oil prices increases.

    what would cause the supply curve to shift?
    thanks heaps for your help

    Mel
     
  2. jcsd
  3. Jul 13, 2010 #2
    What changes the supply curve are changes to the cost of production. This includes opportunity cost. In a recession demand is less so the only way the price would go up is if the supply curve changed. One way I could see it changing is a massive destruction of the oil producing infrastructure.
     
  4. Jul 13, 2010 #3
    Depends - long/medium/short run.

    In the short run, I don't think the AS curve will move because of the previous poster's logic. Only the demand curve shifts.

    In the long run it should actually change a little if it's a massive recession. It's because productive capacity will be stymied. In the long run the AS curve is vertical, and shifts to the right by 2-3% every year. (The AD curve intersects this curve). This amount will be reduced by the recession.
     
  5. Jul 13, 2010 #4

    EnumaElish

    User Avatar
    Science Advisor
    Homework Helper

    "Supply curve" of what? Food? Cable TV? iPhones? Aggregate supply (as one poster interpreted it to be)?
     
  6. Jul 16, 2010 #5
    Hi All
    thank you all for your help i really appreciate you input, sorry if i didnt explain myself properly the question was worded.

    Explain what the impact on quantity demanded and supplied for cars will be if oil prices rise to $200 per barrel. What about if extreme global recessionary conditions also prevail?

    thanks
     
  7. Jul 17, 2010 #6
    Probably, the supply-chains would go relatively private meaning that people with control over oil harvesting and refinement would continue to produce oil and distribute it according to hierarchies of preference. The result would be relatively market-independent economic regimes that did not have to buy oil on the global free market. They would be effectively "above" the recession and would organize economic activities, such as agriculture and food distribution, to benefit the "subjects" of their regimes. If you wanted to be very uncreative, you could call them "welfare states," or maybe "welfare corporations" would be a better term. The problem would be that each would be a ticking time-bomb in that as long as one depleted non-renewable resources like oil, it would have to seek ways to expand its eventual access to oil-rights. This is why the most successful regimes will ultimately be the most sustainable, I think. While some people are fighting over oil and auto-production, others will be zipping around on bicycles and running their computers on solar power. If those people are able to ward off the desperate grasping of the failing welfare-corporations, they will probably suffer less due to oil-inflation and recession - provided they don't get caught in the crossfire of everyone else struggling for scarce resources.
     
Share this great discussion with others via Reddit, Google+, Twitter, or Facebook