Saturday, December 6, 2014

Discontinuity in Oil Prices

Historical oil prices are displayed in 2012 dollars.  That is, the price each year is adjusted for inflation to be equal to the same amount of money in 2012.

Here is the original graph.




Here is the same graph with some mark ups. The mark ups make it more clear that there is not only a discontinuity in the average price level but in the volatility of prices as well.




Students interested in economic examples of discontinuous prices might want to consider looking at oil prices, especially in the 1970s. Parents, do not tell them what caused the volatility.  They can figure this out in their own.