The economic environment and anatomy of business

Quantity supplied “refers to the amount of a product that reducers are willing and able to supply onto the market at a given price in a given time period” (Anon. . D. Tutor, d). In October 2014, oil prices fell from $100 to $82 a barrel and are expected to continue to fall in 201 5, due to a reduced demand for the good and an increased supply (BBC 2014). Slowing growth in Europe and China has contributed to the decrease in demand, shifting the demand curve inwards to the left (demand 1 -demand 2), shown in figure 1. This causes quantity to fall IQ-SQ and price to fall PI-UP (Salesman, 2014, a). Figure 1 Simultaneously, a surge in U.

S. Oil production through franking has increased the supply for oil on the market, further decreasing prices. This is illustrated in figure 2, where supply has shifted outwards from supply 1 to supply 2. This has caused the equilibrium quantity to increase IQ -SQ and the price to decrease PI-UP. (Salesman, 2014, b). Figure 2 Demand for oil is price inelastic in the short run, as not only is energy a necessity across most industries, but also there are few direct substitutes.

However, in the long run, consumers will start to find substitutes such as gas. This was illustrated in the sass oil shocks (Anon. A. D. Tutor, e). Benefits to lower oil prices include a reduction in cost of petrol for consumers. In addition, this will reduce transportation costs for businesses; this benefit may be passed onto consumers who pay a lower price. This Will have a positive multiplier effect across the economy as household disposable income rises, benefiting businesses and potentially leads to economic