How Oil Markets Affect Household Budgets

Introduction

Oil is the particular form of energy that is traded globally and its prices depend mainly on the transport costs from major refining centers. A change in oil prices affects households as it poses an indirect and direct effect on household incomes. These indirect and direct links imply that higher oil prices are associated with disruptions of household budgets.

Oil markets and household budgets

Household incomes are impacted directly through the higher prices of oil products consumed, whereas they are impacted indirectly through the prices of commodities manufactured by other sectors due to increases resulting from input-output linkages with the oil industry. Households that allocate greater portion of their budget to oil commodities experience an increased magnitude of the direct effect. Similarly, the indirect effect will be significant for households that allocate a substantial amount of income to commodities whose prices are significantly influenced by oil prices. Following increasing oil costs, higher energy prices decrease household disposable income and constrict the budget for other expenditures                   ( Bodenstein,  Erceg & Guerrieri, 2011). Simultaneously, an increase in gasoline prices elevates the operating costs of machinery, reducing the probability of their purchase.

Consequently, the decline in disposable income triggered by oil price fluctuations might discourage further household expenditure. The demand of oil is moderately high when prices are high, implying that oil companies should implement efforts in identifying more oil sources. At this time, oil companies accumulate substantial amount of capital. Alternatively, when oil prices decrease it implies that the commodity is in adequate quantities. When the prices are high, oil companies accrue substantial profits, while the consumers and households are required to designate more capital to oil-related commodities. This interferes with a household budget since households are required to reduce other expenses to accommodate the increasing oil costs. Changes in household expenditure due to energy may result from changes in quantities, prices or the number of household members using the given type of energy, and total household income. Oil supply and demand shocks impact household disposable income available for other expenditures through gasoline and energy prices .Interferences in the flow supply of oil  impose a limited role for the ICS, since they only pose marginally significant outcomes on expected inflation , while they do not influence future expectations about  real household income (Güntner & Linsbauer, 2018). Other oil demand shocks, aside from aggregate demand shocks, cause pronounced increments in expected interest rates and inflation resulting in corresponding decreases in anticipated real household income in the short-term. On one hand, an increase in the global demand for industrial goods resultant from global real economic activity  may benefit households while on the other hand, this anticipated  increase in  household income may be affected by increments in future energy prices.

With increasing diesel prices, affluent households are mostly affected while low-income households are majorly affected by increases in higher gasoline and kerosene prices. Overall, the outcomes of energy prices on household budgets in association with expenditure per capita demonstrate a U-shaped relationship (Kpodar & Djiofack, 2010). Nevertheless, despite the type of oil product, high-income households benefit significantly from petroleum price subsidies. Therefore, oil price subsidies are rather ineffective in preserving the income of low-income households in comparison to a targeted subsidy.

Conclusively, when oil markets increase oil prices, households tend to suffer. However, the low-income households are mainly affected with these changes compared to high-income households. Imported premium products as well as locally-manufactured commodities increase due to an increase in oil prices, in turn affecting other household expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Bodenstein, M., Erceg, C. J., & Guerrieri, L. (2011). Oil shocks and external adjustment. Journal                of International Economics, 83(2), 168-184.

Güntner, J. H., & Linsbauer, K. (2018). The effects of oil supply and demand shocks on US                   consumer Sentiment. Journal of Money, Credit and Banking, 50(7), 1617-1644.

Kpodar, K., & Djiofack, C. (2010). The Distributional effects of oil price changes on household               income: Evidence from Mali. Journal of African Economies, 19(2), 205-236.

Essay-Writing
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Essay-writing.com

Quality Research Papers

If you’re looking for an Essay writing service to help turn all of your hard work into a product that readers can appreciate, then look no further than our essay writing website. With a team of writers who go the extra mile, and customer support representative’s around-the-clock eager to assist you, we are ready to ace any exam or provide any posterity with what they need.

Top Assignment Writers

Our essay writers are experienced professionals who have the knowledge to write an essay about any subject matter in an interesting way while maintaining academic integrity. Our professional essay writers work day and night to ensure that you receive quality essays on time without any delay or interruption. With many years of experience behind us, our essay writing website is now led by professionals with extensive knowledge in various fields of study.

Zero Plagiarism

For any write my essay for me request, you will never need to worry about plagiarism or getting caught up in the stress of completing assignments when you use our professional services! Get started today by ordering your first paper from us and we'll give you 10% off!

24/7 Customer Support

We are available 24/7, 365 days a year to help you out with your academic needs! if you have any "do my paper" questions or technical concerns, simply chat with one of our essay writing customer service representatives via the Chat Window on the bottom right corner of this screen

Prompt Delivery and 100% Money Back Guarantee

These academic experts are distinct from most other essay writing websites because they have doctoral degrees and decades of professional experience in academia. And because they know how overwhelming college life can be, we waive all minimum deadlines so you can focus on studying without worrying about your assignment always hanging over your head.

Free Revisions

Our Academic writers are confident and highly capable to take on any challenge ranging from a simple high school essay, question and answer assignment help, PowerPoint Presentation, research paper, dissertation, among others . However, we do not allow customers who abuse the free revisions privilege.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

When the world rushes and deadlines increase, it's hard to put your best foot forward. Essay-writing.com is here to help you with top quality essays on all topics, from history papers and engineering design descriptions to sociology case studies. For any write my essay for me request, you can count on a professional team of essay writers who are well experienced and researched in their field as they develop an original paper for you with 24/7 customer support.

Essays

Homework Help Service

Essay-writing.com is an excellent solution for all your problems regarding writing an outstanding admission essay. You don't need to worry about anything anymore because we will provide you with high-quality papers written by expert writers who know how to write professionally!

Admissions

Paper Formats and Types

From time management skills to APA format citations; from MLA formatting rules for research papers; from college application essays where the stakes are high--all these aspects of academic life become clearer as we write it all down on paper! Essay-Writing.com is a professional essay writing service that provides students with well-researched, high quality essays on any topic and at any level of study.

Reviews

Editing & Proofreading

Some of our clients prefer to write their essays themselves and have a third-party like Essay-writing.com proofread it for errors after they are done writing. We have a skilled team of editors who examine your paper closely, looking out for any mistakes that may lessen the appeal or effectiveness of the essay as well as make amends in order to better improve its overall quality before you submit it anywhere else! For all your editing needs, turn to Essay-writing.com

Reviews

Revision Support

You work hard at your academics, and you should be rewarded, with a revision or modification for free on any order from a discursive essay , assignment to dissertation papers.