ECONOMIC PERSPECTIVES

In the May 25, 2010 Florida Times-Union blog entry, " Small-government Rubio said it may be time for federal takeover of cleanup ops ", David Hunt highlights the hypocrisy inherent in many advocates of free markets, smaller government and lower taxes. When insufficiently regulated markets create socially undesirable outcomes, such as the oil spill in the Gulf of Mexico, those harmed by the market failure scream that the government should do more. You cannot have it both ways. It is easy to support free markets and smaller government when one fails to consider the negative consequences. Rational economists argue those consequences always should be considered. According to David Hunt's blog: During a campaign stop in Jacksonville, former Florida House Speaker Marco Rubio said he's been disturbed by the lack of technology to harness the oil leak in the Gulf of Mexico. Although Rubio presents himself as a small-government candidate for U.S. Senate, he said it may be ...

Click on the image above to enlarge it. In the January 6, 2010 Wall Street Journal article " Cramped on Land, Big Oil Bets at Sea ," Ben Casselman and Guy Chazan report that oil companies exploring in deep ocean waters have discovered "unexpectedly large quantities of oil -- oil that only they have the technology and financial muscle to find and produce." Using the ceteris paribus assumption that ignores other potential changes, what is the likely effect of this discovery on the market for oil? Is this change in the oil market (a) an increase in the supply of oil, (b) a decrease in the supply of oil, (c) an increase in the demand for oil, or (d) a decrease in the demand for oil? Will the equilibrium price of oil increase or decrease as a result of these newly found oil reserves? Read the article below and then illustrate this price change with a graph that shows the initial positions of the supply and demand for oil and the new positions of the supply and dema...