Cheaper Heating Oil Fuels Billions in Savings in Northeast
by: Jon Kamp
Jan 16, 2015
Click here to view the full article on WSJ.com
TOPICS: Oil Markets
SUMMARY: On top of the savings Americans are reaping from cheaper gasoline, plummeting oil prices stand to bring residents in the Northeast billions more in savings this winter when they fill up their home heating-oil tanks.
CLASSROOM APPLICATION: The article has three interesting points about economics. First, students can examine the effect on household budgets of decreasing in heating oil prices. Second, they can investigate the decision by households whether to switch heating systems from oil to natural gas or vica versa. Third, the can examine the reason why a decrease in heating oil prices positively affects the profits of regional oil dealers.
QUESTIONS:
1. (Advanced) For heating oil delivery services, is heating oil itself part of the marginal cost of delivering oil? How does a decrease in the wholesale price of heating oil affect the marginal cost function of heating oil delivery services?
2. (Advanced) How does a decrease in the wholesale price of home heating oil affect the equilibrium retail price? How does the answer depend on the price elasticities of demand and supply? Is the demand for home heating oil perfectly price inelastic? The article hints at the answer to this last question. What is the effect of a decrease in the wholesale price of oil on the equilibrium producer surplus?
3. (Introductory) How do expected oil and natural gas prices affect the decision of homeowners whether to switch heating systems from oil to natural gas or vice versa?
by: Jon Kamp
Jan 16, 2015
Click here to view the full article on WSJ.com
TOPICS: Oil Markets
SUMMARY: On top of the savings Americans are reaping from cheaper gasoline, plummeting oil prices stand to bring residents in the Northeast billions more in savings this winter when they fill up their home heating-oil tanks.
CLASSROOM APPLICATION: The article has three interesting points about economics. First, students can examine the effect on household budgets of decreasing in heating oil prices. Second, they can investigate the decision by households whether to switch heating systems from oil to natural gas or vica versa. Third, the can examine the reason why a decrease in heating oil prices positively affects the profits of regional oil dealers.
QUESTIONS:
1. (Advanced) For heating oil delivery services, is heating oil itself part of the marginal cost of delivering oil? How does a decrease in the wholesale price of heating oil affect the marginal cost function of heating oil delivery services?
2. (Advanced) How does a decrease in the wholesale price of home heating oil affect the equilibrium retail price? How does the answer depend on the price elasticities of demand and supply? Is the demand for home heating oil perfectly price inelastic? The article hints at the answer to this last question. What is the effect of a decrease in the wholesale price of oil on the equilibrium producer surplus?
3. (Introductory) How do expected oil and natural gas prices affect the decision of homeowners whether to switch heating systems from oil to natural gas or vice versa?
Reviewed By: James Dearden, Lehigh University
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Edward Millner, Professor
Department of Economics, Virginia Commonwealth University
Snead Hall, B3145
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I never teach my pupils. I only attempt to provide the conditions in which they can learn.
- Albert Einstein
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