Preview

Factors, Fluctuating Gasoline Prices

Good Essays
Open Document
Open Document
2310 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Factors, Fluctuating Gasoline Prices
The case study of the article from Wall Street Journal, dated from March 2008.

AMERICANS START TO CURB THEIR THIRST FOR GASOLINE.

SLIDE 2 In recent years, the world 's appetite for gasoline and diesel fuel grew so quickly that suppliers of these fuels had a difficult time keeping up with demand. We all know the situation with gasoline prices for the resent several years. The prices for gasoline had been changed rapidly. Mostly increasing, while the demand for it did not. For example, gasoline prices by Feb. 2008 rose to an average of $3.13 a gallon, that is up to 40% from $2.24 in Jan 2007. ( with the price elasticity 1%/40% = 0,025), and up to 62% from 2003. (with the price elasticity 1%/62% = 0,016). Yet, demand continued to grow at an average 1.15% a year by 2006. Someone could ask why the rise of price did not caused the reduce of demand. The answer is that in this case we face the shift of demand (2003 – 2006) due to increase in customers income, and the cars appeared to be more affordable for most people, especially favorable were huge cars (and very fuel inefficient), that perceived to be more safe and prestigious. As we know, increase in demand for complementary good 1 causes the increase of demand for complementary good 2 (cars and fuel). As cars can not run without fuel. The increase of demand for gasoline was the response to the increased demand for cars, and market responded for that with the increase of gasoline prices (shift in equilibrium price).

SLIDE 3 Consumers were better able to absorb the increase in gasoline prices and pinch pennies at less price stores like Wall mart and keep driven, because : 1.Consumers could not stop driving, driving could be the last thing they could refuse to do. And they could not drive without gasoline – as there are no substitutes for gasoline (unless they switch for other fuel-source car) 2. Consumers thought that was only shot- term increase in gasoline prices, and

You May Also Find These Documents Helpful

  • Good Essays

    Gas Prices

    • 533 Words
    • 3 Pages

    To prevent gasoline prices from having devastating effects on the economy it has been proposed that all gasoline prices in the United States be fixed at the average price for the last two years. For simplicity it will be assumed that this price is $2.50 per gallon. When equilibrium prices are under $2.50 per gallon the excess payments will be kept in a government fund. When retail prices exceed $2.50 per gallon money from this fund will be distributed to pay the difference.…

    • 533 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Figure 2.1 (a) reveals that the price of substitute goods, such as the smaller and fuel-efficient cars makes the car demand curve shifting. Environmental concerns and rocketing petrol price are the other vital factors can be considered.…

    • 1593 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    Course Project - Part 1

    • 637 Words
    • 3 Pages

    Below is the supply and demand curve that we review when observing gasoline prices going up in the field. Basically under normal conditions we see the equilibrium price being where supply intersects demand at EQ and EP. However, as we experience issues where manufacturers end up not supplying as much fuel as before we see supply shift to the left and this is seen in the supply graph S2. We also see equilibrium price move up because of this from EP to EP1. An example of such an incident occurred during the Katrina Hurricane back in August 2005. The hurricane damaged the 30 oil platforms and the closure of nine refineries. This reduction of oil production reduced the amount of supply of gasoline for the nation. Thus rising the price of gas nationwide.…

    • 637 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Gas Gouging

    • 328 Words
    • 2 Pages

    Everyday when we drive down the highway, we see changes in advertised prices. One gas station may advertise gasoline at $2.69 per gallon and the consumer goes three miles down the road where another gas station advertises gas at $2.35 per gallon. Consumers will then make an extra effort to travel to the gas station with the cheaper price.…

    • 328 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    ECON 545 Project 1

    • 730 Words
    • 3 Pages

    Retail gasoline prices fluctuate largely due to crude oil prices and supply and demand. Demand for oil is high with an ever-increasing demand in the United States and throughout the world, supply and production is limited and due to the ongoing debate on offshore drilling for new wells control of gasoline prices appear to be unattainable. (2)…

    • 730 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Week 1 Eco 365

    • 635 Words
    • 3 Pages

    In today’s economy many trends in consumption patterns can determine where the supply and demands are needed. In the article “East Bay Oil Exports Have Become Huge Business,” by Glantz (2012), it touches on the subject of trends and consumption of oil. Many people are aware; however forget that there is a whole lot of oil around us that can be used. This paper will discuss and address the utilities derived, the change that demand for the product or service of market and equilibrium prices, what has occurred to change the demand and supply of the oil, and is demand for oil product or service price elastic or inelastic.…

    • 635 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Eco 365 Week 1

    • 708 Words
    • 3 Pages

    Gasoline pricing is a constant irritate for many of us who are not happy about the high cost of fuel and why it remains high. We can use empirical results that can provide evidence to this very contention of high fuel expense if we research the following: Asplund et al. (2000), Bacon (1991), Borenstien et al. (1997), and Peltzman (2000). These explanations can provide some prime evil example of why the costs are constantly affected in our everyday life. When crude oil is produced it provides the cost per barrel depending on how many barrels it’s producing, therefore if the price is $ 80 dollars per gallon it may in fact cost the consumer the same amount by the cost of fuel per gallon. (Rising Gas Prices)…

    • 708 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Business Proposal Eco 561

    • 1740 Words
    • 7 Pages

    McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin.…

    • 1740 Words
    • 7 Pages
    Better Essays
  • Satisfactory Essays

    Econ 545 project 2

    • 420 Words
    • 2 Pages

    The article tells us the gas prices are expected to touch a high of $4. It also states that this high price has forced consumers to squeeze non-gas spending and even cut back on gas consumption. . ‘the hike at the pump is beginning to push drivers off the road’. So we have rising prices and declining consumption. This means lower expenditures by consumers that implies lower revenues for gas station owners.…

    • 420 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Project Part 1 Econ 545

    • 678 Words
    • 3 Pages

    The price of gasoline is definitely driven by the concept of supply and demand. When prices fall, quantity demand will rise, when price rises, quantity demanded will fall. This statement is true in most cases. But gasoline is a necessity to most Americans. The demand for fuel does not decrease when the price increase. Consumers often influence the price of gasoline. Gas prices in the late spring and summer months are the highest during the entire year. These are the periods when consumers drive the most. This is the time when most construction and manufacturing jobs are in operation. Like now, in the winter, gas prices are at the lowest point in a six month period. The six-month gasoline price chart I viewed at chicagogasprices.com indicates this notion. The average price of gasoline in the Chicago area is between $3.25 - $3.70. In the summertime, we were paying gasoline prices of around $3.80 - $4.50. Consumers are deciding to drive less for recreation and more of going straight from point A to point B. The supply of gasoline has increased during the winter months, and producers capitalize on that surplus with the increased driving by consumers in the upcoming spring and summer months, while increasing the price of gasoline substantially. But in the news, you continue to hear of crude oil shortages. Big Oil Companies reported huge profits on high gasoline prices continuously for the past 4 (Froomkin, 2011). The Big Five oil companies made $36 billion in profits in the second quarter of 2011 (Froomkin, 2011). Consumers are now looking for alternative solutions in transportation because of the unsavory price fluctuation of gasoline prices while oil companies post major profits.…

    • 678 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Gasoline became less demanded because buyers didn’t have the desire to pay for it. The desire for gas lessens and this impacts the supply of gasoline. With the producers of gasoline being burden and having the surplus of gasoline, leaves the suppliers with limited options, lower the cost of the gasoline to generate some revenue or to not adjust the price and continue to experience the effects of not having it sell and thus losing revenues. This is the beauty of the free market system, consumers have the ability to assist with establishing the price of goods and services. Other factors that have contributed to the decrease of…

    • 869 Words
    • 4 Pages
    Good Essays
  • Good Essays

    are considering hybrids or electric powered cars for their next car purchase. However, that is not…

    • 701 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Gasoline is an inelastic demand , better explained by a “situation in which a price change leads…

    • 962 Words
    • 4 Pages
    Good Essays
  • Better Essays

    demand for gas to drop. Another option that would eventually decrease the demand for gas would be for people to not drive their cars if it isn’t necessary. For example, why waste gas going to the grocery store when you know the items you’ll be carrying will not need a car to do the job. A few minutes of walking wouldn’t hurt anyone. Another simple solution to this problem would be for Americans to start taking public transportation; this in turn would be a substitute for a car. Another simple solution to this problem is to create more fuel efficient cars, these type of cars will save you a tremendous amount of money for gasoline.…

    • 699 Words
    • 3 Pages
    Better Essays
  • Good Essays

    Changes of Gas Prices

    • 729 Words
    • 3 Pages

    Over the period of 1980 to 2010 the prices of gasoline have fluctuated a lot from lows to highs. There were some drastic prices increases from 1999 to 2008 changing from one dollar to four dollars. After 2008 the prices suddenly fell off drastically but never have returned to what they were in 1999. The main cause for the rise and fall of prices over the years can be attributed to the supply and demand, while the future prices will still depend heavily on these two factors.…

    • 729 Words
    • 3 Pages
    Good Essays