AP Economics Learning Project

Week 3 Econ ELP
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Related Documents
  Zelgai Saleh Mr. Hoppock Economics AP October 18, 2014 ELP 1: Crude Oil Cunningham, Nick. Crude Oil Prices Keep Falling. But Oil Production Just Gets More Expensive. The Christian Science Monitor. The Christian Science Monitor, 15 Oct. 2014. Web. 17 Oct. 2014. The article addresses crude oil prices and costs of production. It specifically talks about the Kashagan oil field in Kazakhstan, one of the most expensive oil fields to date. The article addresses the specific challenges of the Kashagan oil field and explains why the marginal cost of the field is not only high but also rising. The field has been delayed multiple times due to complications such as corrosive gases and large sections need to be replaced, repaired or changed which increases the initial investment in the field. The article also addresses the state of the oil market and the state of production and cost. It says that lately the production of crude oil has stagnated and the marginal cost of production is increasing, yet the prices drop. The article concludes that this cannot continue as at some point the increasing marginal cost will either force fields to close or raise prices The article relates to the third principle of economics from Mankiw. The third principle says that rational people think at the margins. The marginal benefit for the oil producers in the article at the moment from new oil fields still outweighs the marginal cost of the new oil fields so the invest money in creating the fields. The article also illustrates how as marginal cost increases due to complications the oil producers have the option of increases prices (marginal benefit) or  just not taking the action of creating new fields and shutting down. I think that the oil field will be completed and the creation of new fields will continue to happen mainly because the supply of oil is decreasing in the world. The article says that the Kashagan field is estimated to hold enough oil to meet the world demand for only 5 months. Meaning that eventually, and not in the too distant future that field will run out, as will others. The only way to actually maintain a supply of oil for the world would be to create new fields.  Furthermore the actually tangible need for oil as a fuel source will drive the maintenance of  production.
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