Gas Price Elasticity Essay -- essays research papers

fluff Price ElasticityThe sinew Information Administration of the Department of Energy began tracking calendar weekly ordnanceoline expenditures in 1990 by means of a survey of 800 service stations around the nation. The average retail price for unleaded gasoline posted its fourth record high during the week of June 12, 2000, increasing 5 cents a gallon to an average of $1.681. The price at the core is higher than the same period last year by 56 cents and has risen 16.2 cents over the past month (Anonymous, 2000).How far lead it rise? What will consumers do about the dramatic increases that are occurring with the reach of each shipment? Price elasticity of want would indicate that demand will fall as prices continue to rise, which in turn should declaration in a reduction of prices and a subsequent increase in demand. Such may prove to be the case, but the scenario is an unlikely one.Prices prolong increased all over the country, but price increases in the middle west cook been even more(prenominal) dramatic than in other areas. crossways the region, prices are averaging $1.874 for a gallon of unleaded, but that same product is well(p) over $2 a gallon in many of the cities of the Midwest. higher(prenominal) grades average $2.003 across the region, marking the first time that average prices have been so high in a specific region of the country (Anonymous, 2000). There is so much concern over the rising prices that patently are continuing to rise without abatement that the Federal Trade perpetration (FTC) has "opened a formal investigation into soaring gasoline prices in some areas of the Midwest and will begin issuing subpoenas to crude oil companies by the end of the week" (Hebert, 2000 p. aol).Sen. Richard Durbin, D-Ill. believes that the oil companies will reduce prices right aside once the subpoenas begin to appear, and the countrys vice president has mentioned that collusion may be behind the oil companies huge profits this ye ar (Hebert, 2000). The summer parkway season always brings higher prices in response to heightened demand, but never to the extent seen this year.Of course the final apostrophize of gasoline at the pump is affected by the price of a barrel of crude, but to a lesser extent than oil producers would have consumers believe. The price of crude accounts for besides 30 percent of the final personify to the consumer (Brodrick, 2000a). In 1981, the cost of crude accounted for 62 percent of the final c... ...evert to normal levels following the world oil shortage in the 1970s, but of course that never happened. Because the government controls more than 37 percent of the final cost, only 63 percent of the cost is open to being affected by market forces. Gas is a low elasticity product for the reasons discussed above the wonder is that it does not cost even more at the pump.ReferencesAnonymous (2000). Economics 52 - use Price Elasticities to Forecast Prices. At http//nimbus.temple.edu/gl ady/GasPrice.html.Anonymous (2000, June 19). Record Gasoline Prices for twenty-five percent Week in a Row. Reuters at www.aol.com.Anonymous (2000). The Strategic fossil oil Reserve. US Department of Energy, Fossil Energy at http//www.fe.doe.gov/spr/spr.html.Brodrick, Cynthia E. (2000, February 15). How do gas costs affect consumers? At http//aol.thewhiz.com/2000/02/000215d.asp.Brodrick, Cynthia E. (2000a, February 15). The cost of a gallon of gas. At http//aol.thewhiz.com/2000/02/000215b.asp.Georgy, Michael (2000, June 20). OPEC Prepares To Raise Oil Exports Again. Reuters at www.aol.com.Hebert, H. Josef (2000, June 20). FTC Opens Gas Price Investigation. The Associated Press at www.aol.com.