Why are Gas Prices Rising?
Over the past couple of months, there has been a rapid increase in the price per gallon of gasoline. Studies done by the AAA motorist group show the current gasoline prices remain steady at $3.542 per gallon, and with the summer approaching that number could reach as high as $4.00 per gallon. Currently in Hawaii and California the price per gallon has already come close to reaching the $4.00 per gallon, hovering between $3.95 and $3.97 per gallon. Because of the intensifying fighting in Libya and the Middle East, oil prices are rising through the roof. If the fighting reaches Saudia Arabia, (the biggest oil producing nation) prices could reach an absurd amount in the near future. Through the basic concepts of supply and demand, we can better understand why this constant price increase is occurring.
As gas prices rise, fewer and fewer people are going to the tanks to fill up. Using the principles of the law of demand, we can see that the increase in the price of gas results in a decrease in the quantity demanded by consumers. This in turn hurts the total income of our economy because more and more people are refusing to buy gas. Our gasoline comes from crude oil and then is refined into the gasoline we sell at the pumps. Crude oil and gasoline serve as compliments to one another. The higher the price of oil equates to a higher price in refined gasoline. If the price of oil rises, then the quantity demanded of oil will decrease and the demand of gasoline will decrease as well. In order to keep prices from rising, quantity demanded and quantity supplied must meet an equilibrium; that is to say they must be the same.
Factors of supply such as taxes and technology can also affect the price per gallon of gasoline. The higher the tax is on refining oil, the higher the final price of gas. In return, this would decrease the amount of gas supplied because it would become too costly to earn a profit from gas. Technology in the refinery plants also affects the amount of gas supplied. If a new product was created in the refinery plants that could refine oil cheaper and more efficiently than ever before, then we would see an instant increase in gas supplied because there was an improvement made in the technology of the refineries. If more gas could be supplied more efficiently, then the price of gas would be able to slowly drop.
If gas prices do not decline then we can expect consumers to step back and slow spending. For every ten cent increase in gas prices, an additional $14 billion per year is taken out of consumer pockets. On average, Americans spend $1 billion per day on gas. Rising gas prices are and will continue to affect our economy. Gas prices affect everyone including, businesses, athletic teams, students, airlines, and everyday working citizens. With gas prices continuing to rise every week, I think we can continue to see the demand for gas to decrease as Americans do not want to trim daily expenses and choose to cut back on any unnecessary travel expenses.
Links:
http://www.usatoday.com/money/industries/energy/2011-03-08-gasprices08_ST_N.htm
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/07/AR2010010704255.html
Works Cited:
Copeland, Larry. "Rising Gas Prices Could Stall U.S. Recovery - USATODAY.com." News, Travel, Weather, Entertainment, Sports, Technology, U.S. & World - USATODAY.com. 8 Mar. 2011. Web. 20 Mar. 2011..
Ahren, Frank, and Mike Musgrove. "Rising Gas Prices Could Be a Drag on Economic Recovery." The Washington Post. 8 Jan. 2010. Web. 20 Mar. 2011.
Over the past couple of months, there has been a rapid increase in the price per gallon of gasoline. Studies done by the AAA motorist group show the current gasoline prices remain steady at $3.542 per gallon, and with the summer approaching that number could reach as high as $4.00 per gallon. Currently in Hawaii and California the price per gallon has already come close to reaching the $4.00 per gallon, hovering between $3.95 and $3.97 per gallon. Because of the intensifying fighting in Libya and the Middle East, oil prices are rising through the roof. If the fighting reaches Saudia Arabia, (the biggest oil producing nation) prices could reach an absurd amount in the near future. Through the basic concepts of supply and demand, we can better understand why this constant price increase is occurring.
As gas prices rise, fewer and fewer people are going to the tanks to fill up. Using the principles of the law of demand, we can see that the increase in the price of gas results in a decrease in the quantity demanded by consumers. This in turn hurts the total income of our economy because more and more people are refusing to buy gas. Our gasoline comes from crude oil and then is refined into the gasoline we sell at the pumps. Crude oil and gasoline serve as compliments to one another. The higher the price of oil equates to a higher price in refined gasoline. If the price of oil rises, then the quantity demanded of oil will decrease and the demand of gasoline will decrease as well. In order to keep prices from rising, quantity demanded and quantity supplied must meet an equilibrium; that is to say they must be the same.
Factors of supply such as taxes and technology can also affect the price per gallon of gasoline. The higher the tax is on refining oil, the higher the final price of gas. In return, this would decrease the amount of gas supplied because it would become too costly to earn a profit from gas. Technology in the refinery plants also affects the amount of gas supplied. If a new product was created in the refinery plants that could refine oil cheaper and more efficiently than ever before, then we would see an instant increase in gas supplied because there was an improvement made in the technology of the refineries. If more gas could be supplied more efficiently, then the price of gas would be able to slowly drop.
If gas prices do not decline then we can expect consumers to step back and slow spending. For every ten cent increase in gas prices, an additional $14 billion per year is taken out of consumer pockets. On average, Americans spend $1 billion per day on gas. Rising gas prices are and will continue to affect our economy. Gas prices affect everyone including, businesses, athletic teams, students, airlines, and everyday working citizens. With gas prices continuing to rise every week, I think we can continue to see the demand for gas to decrease as Americans do not want to trim daily expenses and choose to cut back on any unnecessary travel expenses.
Links:
http://www.usatoday.com/money/industries/energy/2011-03-08-gasprices08_ST_N.htm
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/07/AR2010010704255.html
Works Cited:
Copeland, Larry. "Rising Gas Prices Could Stall U.S. Recovery - USATODAY.com." News, Travel, Weather, Entertainment, Sports, Technology, U.S. & World - USATODAY.com. 8 Mar. 2011. Web. 20 Mar. 2011.
Ahren, Frank, and Mike Musgrove. "Rising Gas Prices Could Be a Drag on Economic Recovery." The Washington Post. 8 Jan. 2010. Web. 20 Mar. 2011.
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