The Middle East acts as the largest oil producer. In fact, most of the world’s largest economies depend solely on the region for the given product (Federal Trade commission, 2011). In the event of political unrest, the oil supply would be greatly compromised leading to a fall in the same and consequently, the demand for the commodity would go up. As the law of demand states, this would lead to an increase in the price of oil. This would affect the equilibrium level of oil demand translating to consumers paying more for less of the quantity.

This scenario would have very severe implications on consumers in terms of energy utilization (Mind Tools, 2011). Oil being a raw material for gasoline would lead to a proportionate cost enhancement in the value of gasoline. The price increases would largely be shifted to the consumers. Note that, the increase would also lead to a similar increase on other economic goods that depend on the same for production.

Demand refers to the amount of a given commodity that consumers are willing to purchase at a particular price in a specific period. Supply on the other hand is the amount of a given product that the suppliers are willing to produce and avail in the market for a certain price in a specific period. The equilibrium level of demand and supply is the point at which the demand curve and the supply curve meet in schedule. This curve is used to determine the market price and level of a commodity as shown in the Fig. 1 below. A modification of supply levels always results in a change in the price of a commodity and consequently changes in the demand of the same.

These changes are influenced by, changes in production cost, improved technology, industrial growth, political stability amongst others (Federal Trade commission, 2011). The shift in supply changes the equilibrium price. Due to the high rate of fuel consumption by luxury cars, consumers may opt to purchase low consumption cars shifting the demand downwards for the luxury vehicles. This would lead to a reduction in prices for the luxury cars in respect to the law of demand. The equilibrium price of the luxury cars will drop in accordance to the quantity demanded the supply levels would also drop due to low prices.

Rise in fuel prices would prompt consumers to move alternatively to low consumption cars thus shifting the demand in favor of economy cars. This would attract high prices for the economy vehicles as enhanced demand is noted in respect to pricing laws. The supply of the same would be expected to rise as a result and thus shifting the initial equilibrium upwards.

Supply and demand curve for gasoline:

Supply and demand curve for luxury:

Supply and demand curve for economic cars:

Works Cited

Mind Tools. Supply and Demand Curves: Understanding Price and Quantity in the Marketplace. 2011. Web. 11 Oct 2011.

Federal Trade commission. Gasoline Price Changes: The Dynamics of Supply, Demand, and Competition. 2011. Web. 11 Oct 2011.

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Wholesale Prices

This article specifically deals with inflation in the United States market caused by rising prices of fuel and agricultural commodities, consequently raising wholesale prices. Prices have continued rising in the last month and continue rising up to this month. Oil, being the major source of energy for companies, increases their costs of production, which means they incur more costs for buying the same amount of goods they bought before. This means that buying at wholesale is at higher prices than before for the companies, and they might consider increasing the price of goods and services, as well. As long as the demand for energy continues to rise across the globe, inflation in oil prices will continue to rise. Costs of goods and services will rise with the rise in costs of energy especially gasoline and natural gases. Their supply is not increasing.

In the last month of august, the wholesale price of goods has gone up in United States following the rising cost of fuel, specifically gasoline and natural gas. The wholesale price for both of these two fuels rose by 13.6% and 11.9% respectively (Bartash, 2012). This resulted in an increase of 6.4% of the energy index. The rising prices in oil caused the rise in cost of gases by almost 8% per gallon to $3.84. The increase in cost of energy raises the cost of production for factories to produce goods and services, as well. Thus, they are left with the choice of passing the costs to customers or bearing the costs. However, for fear of competition, many companies have not extended the rising costs to consumers. Prices of goods continue to rise with the biggest risers being dairy goods and eggs. Gasoline and gases or energy is one of the most crucial commodities of today. When their supply is limited, prices of many commodities are affected since energy is required for their production and transportation.

In addition, the article cites that supply of agricultural commodities is likely to go down due to an anticipated drought (Bartash, 2012). This will mean that goods will reduce within the market, raising the costs. The drought is set to cause a shortage of many agricultural goods that are essential. As costs continue to rise, the value of money is reduced, where one needs more money to buy the same goods one bought with a smaller amount of money. This means the money will not have the same value in the future if prices continue to rise as they are rising. More so, the demand for energy continues across the whole globe, which means that almost all countries will be affected. Therefore, its supply will continue to be a problem in the market.

(Inflation is defined as the persistent rising of prices of commodities and services in a country, which causes a fall in the value of the currency). As a country, inflation happens when most of the items and services continue to rise persistently, causing several effects such as reduced savings, increase in cost of imports among others. Inflation occurs when demand for commodities and services is higher than the market can supply. As the law of demand and supply stipulates, when the demand is higher than the supply, the prices of the same goods and services increases and when the supply is higher than the demand, price will go down. The former is presented in this event where there are many people willing to buy the commodities and services. When there is more supply than demand causing a shift in prices downwards, it is referred to as deflation, which is the opposite of inflation. Inflation can also be defined as too much money chasing very few goods and services. Therefore, when the supply of food, gasoline and gas becomes less than the amount demanded, their prices go up.

This article as mentioned specifically addresses inflation that is related to supply and demand. The article suggests that the price of wholesale has gone p in the United States over the last month caused by increasing fuel prices. Fuel prices increase due to higher demand. Thus, being a source of energy to companies means their cost of production is increased. Additionally, the expected drought will cause a reduction in the supply of food in the market. This will cause another rise in price for food commodities further lowering the value of the currency. If prices continue this way, it is not only the wholesale prices that are going to be affected but also retail prices since firms have to make a profit. Currently, the companies have not extended the cost to the consumer, which the article cites as a way of avoiding competition from lower price companies. At this time when the economy is not particularly stable, consumers become price sensitive. However, companies can have another solution to tackling such rises in wholesale prices before extending them to the consumers. Other alternatives can be sought such as reducing some of the costs associated with production such as a reduction in energy consumption.


Bartash, (2012). U.S. wholesale prices jump 1.7% in August: Escalating cost of gas, food triggers biggest rise in three years. MarketWatch. Retrieved from on September 14, 2012.

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