Critique-Why Are Gas Prices Rising?

The two articles used in "Why Are Gas Prices Rising?" discuss and try to pinpoint the issues behind gas prices rising. Analysts estimate prices could rise to $4 a gallon in the near future. Such a dramatic rise could hinder our already slow economic recovery. They attribute the rise in prices to the situation in Libya and surrounding areas. Analysts are very worried about protests beginning in Saudi Arabia because they supply 10% of the world’s daily production of oil. If protests began in Saudi Arabia oil prices would skyrocket. To aid the price raises the United States government contemplated using USA's 727 million-barrel reserve oil to aid in lowering the price of oil. Its estimated that for every $0.10 rise in gas prices it takes $14 billion per year out of the consumer’s wallet.

The original blogger mentioned how technology and taxes could potentially affect prices. These were good points and plausible situations. However, not discussed, were some of the current issues affecting this rise in gas prices. Uncertainties and price expectations are affecting gas prices and the economy’s recovery.

Currently, gas prices are rising largely due to uncertainty and expectations about what could happen in Libya and Saudi Arabia. Price expectations are the first part of the inflation equation. In this situation, this number would be very high because consumers are expecting that if the outbreaks continue in the Middle East, production of oil will cease, supply will decrease, and there will be large jumps in prices. Expectations such as this, could lead to an outward shift of the short-run Phillips Curve, as well as, a possible inward shift of the aggregate supply curve.

This rise in gas prices is only going to slow down the United States road to economic recovery even more. Gasoline is a relatively price-inelastic. Meaning consumers will pay any price because they need the good, gasoline, to function normally in their everyday lives. This is easily seen in the Bureau of Economic Analysis’ most recent report. The changes from quarter to quarter of the consumption of gasoline and other energy goods are minimal, at $285.5 billion in 2009 and $284.5 billion in 2010. These numbers show how inelastic gasoline is because its consumption was barely changed even through a recession. This most recent rise in prices means consumers will be putting more of their disposable income towards gasoline instead of spending it on clothes, cars, food, or investing which would all help the economy.

At this point, we can only hope that this rioting ends soon. Not only for the safety of the Middle East, but also so oil prices can decrease and our economy’s recovery can speed up.