A Journal opinion article and address an economic issue of current Essay - 1

A Journal opinion article and address an economic issue of current interest to Wall Street Journal readers - Essay Example a Questions & Answers session with Josh Zumbrun and Brian Baskin published on the Wall Street Journal (n.pag.), the two economics correspondents highlighted the implications of a reduction in world oil prices. It is true that a reduction in oil prices will increase GDP, create more jobs and reduce consumer prices however the long-term implications can sabotage technological development in the shale oil exploration, oil extraction and petroleum production projects. Most oil projects are large-scale developmental projects that require huge funding but a reduction in oil prices will make them less feasible. Investments in the oil sector will reduce and this will threaten the production of fuel which is a highly sought-after product for the industries. There are other psychological implications to the oil price reduction. Firstly, lower prices will stimulate a behavior of greater consumption which will increase consumer spending. Secondly, the sense that gas prices are low, consumers will not find an incentive to switch to more fuel efficient cars. As a result, investment in fuel efficient cars will decline making the production of fuel efficient cars unprofitable. Another impact would be that people will start to spend greater amounts on fuel and burn more fuel. The drop in prices will thus be adjusted by greater consumption of fuel and this will increase the overall demand. Considering the long term implications of the drop in fuel prices, there is a need for the government to regulate oil prices since oil is an important commodity. A price floor should be implemented below which the price of oil should not be allowed to fall (Mankiw, 117). This will help mitigate the impact of falling oil prices on consumer spending, greater fuel demand, and reduced investment in oil projects. In the long run this will enable healthy investments in fuel efficient cars as well as oil production projects so that they ensure ample oil supply that powers industries and fuel efficient