Summary:
The article I read about talks about the reason behind the huge increase in oil prices; moreover, it also talks about decreasing oil pricing solutions. I believe the Canadian Government holds responsibility to the high cost of oil. According to this article, in Canada, there is too much government involvement in the oil industry. As a result, price controls, heavy taxes, and massive government interfering in energy markets to keep price down was what OPEC responded with. Therefore, less oil is produce by producers which caused a limited and insufficient amount of oil to meet the high demand; thus the high cost of oil. By this time, OPEC decided to try things a bit different. They decreased taxations for oil makers, as well as decreasing the number of regulations. With this change in technique, sufficient amount of oil met our high demand and made it affordable and profitable for both the buyers and suppliers. To summarize the article, the article says that the factor behind high oil prices, inefficiencies and insufficiencies in oil development is government involvement.
Connection:
Firstly, I believe the biggest connection of this article to the text book is the result of government intervention in the free market. Referring to this article, over the past few years, excessive government involvement causes increase oil price in the oil industry. Consequently, the condition of price ceiling occurs; the supply of oil is a shortage, and the supply can not meet the high demand. The solution to this problem is to shift the supply and demand curve according to the factors of Supply and Demand that of Chapter 2. In addition, government places excise tax on oil industries, which is why the cost of oil is at such a high cost. Therefore, market equilibrium can not be reached without government assistance. The government basically disrupts the natural functioning of the market, and it leaves us thinking that if initially government was not involved, then the problem of unstable and unreachable oil market equilibrium would not have occurred.
Reflection:
Oil is priced at $0.98/liitre. Compared to $1.50/litre a few months ago, it may seem that the reason behind the lowered price is due to reduction of government involvement. However, this is not true. The reasoning behind the drop is because of the global economic crisis happening right now and not the government. So people did not have as much to spend, which decreased the demand for oil world wide. I actually believe that the government did not take any actions listed in the article to lessen oil prices during the past decade because the government is profit-driven, meaning that they only want to make big profit margins through heavy taxations and strict regulations; the government does not care if we suffer through high oil prices.
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