Microeconomic Policy Essay Example for Free

Microeconomic Policy Essay The article identifies the major reasons why oil prices have become high and will remain high. Lynn Westfall, chief economist for Tesoro (TSO), suggests that the increase in the cost of crude per barrel leads to an increase in the prices of gasoline. The chief economist also suggests that the cost of investment for a new refinery would be at least $16 billion and would depend on several factors like pollution control, the cost of human labor, and the maintenance cost for the refineries. Moreover, the huge increase in global consumption levels has led to an increase in consumer demand and a lengthy process of extracting and refining of crude oil. In essence, the article conveys that the pending situation of high gasoline prices will not be resolved overnight and that the existing social conditions especially the presence of legal sanctions and proscriptions will suppress the possibility of maintaining the status quo or of lowering todays dizzying oil prices. Primary Economic Elements Mechanical enthusiasm scaling from simple lawn mowers to complex factory engines, as well as the trend for travelling and other interests of the like has thoroughly mounted the demand for gas. Given with such instances, the production of gas has been failing to meet that demand, so the anticipated and foreseeable price ceiling is not able to reach the ideal economic state of equilibrium. According to the analysis discussed in the article, it is evident that the catastrophically-triggered instances in the past few years have gravely affected the circulation of natural resources and minerals. The statement given by the chief of Tesoro Corporation (a company engaging in marketing and refining petroleum products in the United States) that the rapid increase of gas prices, ranging from a shoot up of over $3. 20/gallon, commenced the problem which is now taking occurrence in the arena of gas production. Moreover, the fact that consumers have spent approximately $20 billion in this year alone, making the parallel cost of crude somewhere between $30 and $70, is a manifestation that production has depleted at the rate of 2. 5 refineries every two years. Because of the disproportionate rise and fall of demand and supply, the problem is burdening contemporary consumers. Hence, the predicted remedy for such an imbalance in the economic symmetry is taken from the idea of the construction of new refineries. However, constructing new refineries is rather costly in terms of materials, labor, and time. Gas companies are reluctant to take such risks. As for recent analysis of supply and demand, analysts have suggested that there are still 150 grades of gasoline fit enough for use in various states. However, the fear of running down the supply by using these grades is legitimate since refineries need the precise ratio to continue operation. Importing more oil only increases the problem because of the 13% tax on importation. Conclusion Prices on fuel outrageously mount, while the production of supply is belligerently met. It is evident that there is an economic imbalance. the government should seek economic stability to assuage societys fear of a scarcity of resources. However, that scarcity will most likely occur. Such scarcity will lead to poverty (Why Gas Prices Will Stay High, 2007). therefore, the government should take action as soon as possible. Economic stability depends on a balance between production and consumption they should increase and decrease in proportion. What one takes, one must sustain. With that equilibrium, there will still be more for the future. Another issue in this mix is the sustainability of resources. Numerous government agencies are now focusing on the environment and on natural threats that are beyond human control (McPhee) in an effort to determine the appropriate amount for the restoration of lost or damaged properties, specifically when it comes to mineral resources destroyed by natural catastrophes. The change of the price of oil is dependent upon the trade specifications or laws stated in a states contract on import and export. Its primary goal is to stabilize the exchange of goods or energy for the benefit of the benefactor. The changes also depend on the providers ability to produce. The less a resource is available, the higher its cost in the market.