Oil Prices to Cause Supply Shift in the Airline Industry

Prices of crude oil dropped Tuesday, increasing Airline stock and causing a drop in oil supply to major airlines. This is one of the first significant oil price drops for the airline industry since the market crashed in 2008 and 2009. With oil reaching a benchmark of $73.07 a barrel Tuesday, many oil suppliers chose to withhold sales, causing a spike down in the market supply of oil along with the price drop. With this spike downward in supply and upward in demand, oil prices can be expected to bounce back up to at least $75 a barrel by October. This decrease of oil supply in the market can be represented along a Supply Curve Diagram.

As can be seen in the Supply Curve Diagram, a shift in the price of oil has caused a decrease in the quantity of oil supplied to the market. The supply curve in the diagram represents how much oil producers are willing to supply to the market at its relative price. P1 represents the price of the oil before the price dropped. Q1 represents how much oil producers were supplying to the market at that price, also before the price drop. P2 and the movement of the arrow from P1 to P2 represents the price drop for oil in the market that took place Tuesday. Responding to this price drop, producers withheld sales of oil, causing a downward shift in supply. This shift is reflected by the shift from Q1 to Q2 along the supply curve, and represented by the arrow moving leftward along the supply axis.

High Demand for Snuggie┬« Results in Backorders

An drastic increase in the demand for snuggies around the 2009 Christmas holiday has resulted in immense sales as the product has become a major trend. What is the snuggie? It’s a blanket with sleeves, so that you can hold items in your hands while keeping yourself warm with a blanket. It’s caught the consumer market’s attention and it’s selling out nearly everywhere. With the product in high demand, we can demonstrate it’s curve shift along a demand curve graph.

As can be seen in the Demand Curve Graph, a change in consumer taste and preferences has resulted in a complete shift of the curve. People are now demanding the snuggie more, meaning more people want the product. This increase in people’s wand for the snuggie is represented in the graph by the shift of the curve from D to D1. As we can see between D and D1 there is a shift of the graph along both the X and Y axises. This represents an increase in people’s demand for the product and how much they are willing to pay in order to get it. In the graph we can see that a shift in the demand curve has resulted in a shift from Q1 to Q2 as the curve shifts from D to D1. From Q1 to Q2 the price of the product is maintained at P1, but the demand rises. This demand is represented by the arrow from Q1 to Q2 along the Demand axis.

IB Blog Refection – Economics

1) IB Economics grading style is very different from the grading schemes of other classes. The criteria focuses more on direct definitions, key concept application and examples. I’ve found that grading wise the use of examples to explain concepts is always a positive. Using graphs to coincide with these examples and definitions is always advised.

2) Having more formative practice is very helpful. The ability to practice how we need to organize and express our ideas prior to their actual application for a grade is very helpful in reinforcing both specific definitions and also how we use these definitions to explain ideas. I can say that more formative practice will lead to better grades, but I feel that under the general circumstances of learning that is always a given. I feel the formative practice given to us to use for Section 1 was just enough to allow us to gauge how we wanted to write our final paper.

Production Possibility Curves and the Addition of Resources

Question: Using a production possibility curve, explain how the discovery of gold would effect an economy.
Response: The discovery of gold would expand the PPC of an economy. This is because gold would add an additional resource to the economy, expanding it’s production potential. On a PPC, this would result in an outward shift of the curve along both axes to a greater point. This can be seen below on the PPC diagram I have constructed to represent this shift. As you can see, the curve shifts from A1 to A2.

A PPC diagram depicting an outward shift of the maximum output curve

A1 represents the maximum output of the economy before the discovery of gold. A2 represents the maximum output of the economy after the discovery of gold. As you can see, the curve has shifted to a greater value along both axes from this discovery. This shows that the discovery of gold benefits the entire economy, as compared to a shift along only one axes, which represents a benefit to only a certain part of the economy.
A real life example of this PPC shift can be seen in Canada, where Bayfield Ventures Corp. has discovered a gold mineralization spot and has started drilling. This increase in gold in the economy increases Canada’s maximum production output, similar to what is represented in the graph above. This is because the addition of gold adds a new resource to the economy, expanding its maximum output.

Obama Seeks Tax Relief to Spur Growth – PPC

Earlier today President Obama expressed his wishes to expand tax relief in the U.S., proposing to start with increasing federal spending on the nation’s transportation system. Obama is encouraging these ideas in the hope that they will gain bipartisan support going into the November elections. It is uncertain whether or not the tax push will gain enough support to pass, but what is sure is that the proposition will have to be moved quickly if it is to take effect in enough time to change voter opinion this November.

Obama’s shift in spending from consumer to capitol based services can be shown on a Production Possibility Curve (PPC) diagram, seen below, and also explained here by me.


A PPC diagram explaining Obama's shift to Capitol services with his recent tax relief proposition.

Ferruccio Lamborghini: Entrepreneur

Ferrucio Lamborghini, the founder of Automobili Lamborghini.

Born in Italy in 1916, Ferruccio Lamborghini was fascinated with engines from an early age. Lamborghini joined the army during World War II, and was stationed on the island of Rhodes. There was very little military action on the island considering its isolated position in the Mediterranean. For this reason, any broken vehicles on the island had to be repaired on the spot, reusing old parts. Lamborghini found himself especially good at doing this, his friends calling him a mechanical wizard for his improvisation technique. Lamborghini kept many of the vehicles on Rhodes operational using old or outdated parts. After the end of the war, Ferruccio returned to his home in the north, near Modena. Here Lamborghini found a severe need for tractors due to the areas major agricultural business. Using old military parts, Lamborghini was able to build around one tractor a month. He expanded his company as there became a very high demand for tractors. Eventually Lamborghini began producing his own engines, and even reached a production right of over 400 tractors a month in 1960.

Around this time Lamborghini’s focus shifted to developing a high performance car. He had spent these years of his life owning many other exotic Italian cars, including Oscas, Maseratis and Ferraris. Lamborghini however was never really satisfied with these vehicles. Especially their engines. There is a famous story saying that Ferruccio was having troubles with the clutch of a Ferrari 250 GT he owned. He decided to visit Enzo Ferrari about it in his factory nearby. Enzo however would hear nothing from Ferruccio, who he called a simple tractor maker and dismissed. Angered by this, Lamborghini decided there was nothing a Ferrari could do that a Lamborghini couldn’t, and started production designs for his own car, designing it around a powerful new V12 engine, the design of which was drafted by one of Enzo’s ex-Ferrari engineers.

So what led to Lamborghini’s astounding success? His own personal ability. Lamborghini followed his passion, building a company around something he did very well, and something that was by no measure easy to do. Using his experience in the army, Lamborghini turned a small single man company into a sports car giant in only 20 years. With his ability to take risks for financial gain, such as building the original Lamborghini’s design with a much more expensive but much more powerful V12 engine compared to that of the Ferrari 250 GT, Lamborghini created record financial gain in only a few short years. With his new found wealth, Lamborghini again took a risk, expanding his company time and time again to be able to meet Italy’s production needs. Spearheading his company with almost tactical financial decisions, Lamborghini turned his small company into a name synonymous with sports car legends.