Oil Prices: The Economic Consequences

Oil Prices: The economic consequences of a rise in oil prices

Like every college student, or every person who is part of the world economy, I have to make choices about how I allocate my finite resources of time and money. The more money I have to pay for gas, the less money I have for other items in my budget. The fewer goods and services I can buy with my money, the less I can spend and the more I have to work, leaving me less time to devote to my studies. Much of the driving I do is not luxury driving, but a necessity, like my drive to and from school and to work. The more money I have to pay to get to work to earn my living because of the rise in gas prices, the less money I have for going out, movies, and new clothes, the more money I have to work to pay for basic necessities, and the less time I have to devote to my studies, as well as leisure time.

They less money I spend in general, but particularly on luxuries, the more manufacturers' inventories build up in warehouses, and the fewer new workers are employed. This economic 'spiraling' effect means that I face an increasingly competitive job market and the less likely I am apt to spend money on consumer goods, the more likely I am apt to face the difficulty of finding a high-paying job or any job at all, so I can pay for my student loans. In general, all workers may also have to reconsider the value of taking certain jobs, or a second job to make ends meet, because of the prohibitive costs of a long commute.

Because they too must deal with the concept of scarcity and finite resources, producers must raise prices on goods and services, because it costs more to transport all products across the country and overseas. Higher prices means a decrease in demand, and consumers who are already experiencing difficulty paying for basic goods and are even less apt to buy luxury items. Consumers are more likely to cut things out of their budget, and look for lower-priced items when shopping for necessities. Already, I find myself buying generic goods, looking for food on sale, and putting off replacing clothing and shoes with new items. Some people are even giving up beef, not for ethical reasons, but because it is lower in price than chicken and vegetables substitutes (Krauss 2008, p.1).