| Oil prices: | | | | oil prices, most countries will import oil which will |
| Introduction: | | | | be used as an input in almost all the industries, an |
| This paper focuses on rising global oil prices, it | | | | increase in oil prices will lead to trade balances |
| focuses on the effect of rising oil prices on | | | | where countries may face the problem of high |
| developed and developing countries and how | | | | cost of imports than the exports and therefore |
| international trade among countries is affected. | | | | there will be the problem of trade balances, |
| This paper focuses on a new article by the New | | | | countries will also be faced with the problem of |
| York Times on 21st May 2008, this article reports | | | | debts where countries will borrow from financial |
| on the expected oil prices in the near future and | | | | institutions to finance their oil imports. |
| also offers solutions to the rise in prices. | | | | Solutions to this problem include an increase in |
| Summary of the article: | | | | supply of crude oil, however there is also a |
| The article states that oil prices are expected to | | | | possibility of using alternative source of energy |
| reach $200 by the end of the year, the rise in | | | | such as nuclear energy, nuclear energy is a |
| price has been as a result of high speculated | | | | substitute and as the price of oil rises then |
| demand resulting into high prices, the high prices | | | | consumers will demand more of nuclear energy |
| are also as a result of a decline in the production | | | | which may bring down the price of oil due to a |
| of crude oil by non OPEC countries such as Britain | | | | decline in demand for oil. |
| and Mexico. | | | | The other solution is to adopt hybrid vehicles |
| Despite the high rise in oil prices there are various | | | | which are more environmental friendly and require |
| alternative to consumers such as hybrid vehicles, | | | | less running costs, the government has introduced |
| increased nuclear power generation and also | | | | tax incentives to encourage more consumers to |
| increased oil production, in the United States there | | | | purchase these vehicles and also discouraged use |
| has been tax incentives aimed at encouraging | | | | of gasoline vehicles by imposing tax on oil. |
| consumers to buy hybrid vehicles and there has | | | | Conclusion: |
| been an increase in taxes on crude oil. | | | | From history it is evident that the demand and |
| Economic implication of rising oil prices: | | | | supply has automatically adjusted itself to reach |
| The increasing demand for crude oil has resulted | | | | equilibriums, increased demand will cause rise in |
| to an increase in the prices for oil products, | | | | prices and this will lender suppliers to earn more |
| according to the law of demand as demand | | | | income, this will encourage more firms to produce |
| increases then the equilibrium prices are expected | | | | energy resulting to an increase in supply, and the |
| to rise, therefore there is a need to increase the | | | | increase in supply will bring down equilibrium prices. |
| supply of oil in order to bring down the prices and | | | | Therefore there is no need to interfere with the |
| this is because as supply increase then equilibrium | | | | market because the market will ensure proper |
| prices will decline. | | | | resource allocation. |
| International trade is also affected by the rise in | | | | |