This article in the WSJ reports that the decline in oil prices is affecting fracking and green industries. Here are some questions:
- How does the reduction in oil prices affect the quantity supplied of oil and gas?
- How doe the reduction in oil prices affect the market for alternative energy?
SUMMARY: Tumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump. First related article: Oil prices posted their biggest one-day drop in nearly two years amid a glut of crude, threatening the stability of some countries and providing an economic lifeline to others. Second related article: Exxon and Shell are emitting more carbon dioxide despite tapping less oil and natural gas, reflecting the difficulty of tapping new energy sources. Third related article: Since the 1970s, Western politicians keep betting on $10 gasoline that never comes.
CLASSROOM APPLICATION: Students can begin by examining the causes of falling oil prices and then investigate the effects of lower prices on drilling decisions and on the willingness of consumers to switch to greener products. They can also study the effect of various types of drilling on carbon dioxide emissions.
QUESTIONS:
1. (Introductory) What factors are causing oil prices to fall?
2. (Advanced) What is the effect of lower oil prices on the profits of extracting shale oil?
3. (Introductory) What is causing the rise in carbon dioxide emissions by Exxon Mobil and Royal Dutch Shell?
4. (Advanced) What is the effect of lower gasoline prices on the willingness of consumers to purchase hybrid automobiles? Assume that an equivalent hybrid automobile has a higher price but is more fuel efficient. Draw a graph with the total cost of driving (including the purchase price of an automobile and gasoline expenses) and total number of miles driven. Calculate the effect of a decrease in gasoline prices on the break-even point.
CLASSROOM APPLICATION: Students can begin by examining the causes of falling oil prices and then investigate the effects of lower prices on drilling decisions and on the willingness of consumers to switch to greener products. They can also study the effect of various types of drilling on carbon dioxide emissions.
QUESTIONS:
1. (Introductory) What factors are causing oil prices to fall?
2. (Advanced) What is the effect of lower oil prices on the profits of extracting shale oil?
3. (Introductory) What is causing the rise in carbon dioxide emissions by Exxon Mobil and Royal Dutch Shell?
4. (Advanced) What is the effect of lower gasoline prices on the willingness of consumers to purchase hybrid automobiles? Assume that an equivalent hybrid automobile has a higher price but is more fuel efficient. Draw a graph with the total cost of driving (including the purchase price of an automobile and gasoline expenses) and total number of miles driven. Calculate the effect of a decrease in gasoline prices on the break-even point.
Reviewed By: James Dearden, Lehigh University
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