...The price of gasoline has a close relationship with the price of oil. According to Wikipedia, Crude oil is the primary raw material used to produce gasoline and from the mid 1980s to 2003 the price of a barrel of oil was generally under $25. In 2003 the price reached $30 per barrel and by 2005 was up to $60. It peaked in 2008 at almost $150 per barrel and has been causing great economic hardship for societies across the globe. There are several reasons for the increase such as declines in petroleum reserves, tension in the Middle-East and oil price speculation. (Wikipedia.com) The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of twelve developing countries including Saudi Arabia, Nigeria and Venezuela, who pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations. It secures a steady income for its members while ensuring an efficient and reliable supply of petroleum to consuming nations and a fair return for investors in the petroleum industry. OPEC’s influence has been criticized since it became effective in determining production and prices. (Wikipedia) Even though this paper focuses on gasoline prices, it is impossible for me to speak about gas and not also mention oil. Economies around the world are very dependent on oil which is vital to providing petroleum for motor vehicles as well as generating electricity. A decade ago...
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...Descriptive Statistics Gasoline Prices University of Phoenix RES 341 August 21, 2006 Descriptive Statistics Gasoline Price Gasoline is the main product refined from crude oil, it accounts for about 17% of the energy consumed in the United States. The primary use for gasoline is in automobiles and light trucks. Gasoline also fuels boats, recreational vehicles, and various farms and other equipment. While gasoline is produced year-round, extra volumes are made in time for the summer driving season. Gasoline is delivered from oil refineries mainly through pipelines to a massive distribution chain and from there to service station across the country. (Department of Energy, 2006). While the price of gasoline continues to rise, one of the questions on the minds of the consumer pertains to the components that determine the price per gallon of gasoline. Included in the cost per gallon is the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally the retail station costs and taxes (See figure 1). The prices paid by consumers at the pump reflect these costs as well as the profits (and sometimes losses) of refiners, marketers, distributors, and retail station owners (Department of Energy, 2006). Figure 1 [pic] The Gasoline price issue has always occupied an important part in any discussion and in any plan of government. As we stated in our first group assignment, gasoline is the bloodline that keeps...
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...Running Head: GASOLINE AND OIL PRICES EFFECT ON AMERICANS Gasoline and Oil Prices Effect on Americans Cindy Gasoline and Oil Prices Effect on Americans A well-known fact to Americans is gasoline and oil prices have soared over the last several years. Virtually every American has made changes in their day-to-day life related to this higher cost. Even though gasoline/oil companies and the people who invest in them are making money, prices are too high; many Americans have to decide between buying gasoline and paying for their prescription medications, healthcare, mortgage, and food. The government needs to step in and set guidelines to prevent gas companies from raising prices so quickly. “While drivers have been painfully paying up at the pump, oil companies have been racking up eye-popping profits” (Krantz, 2005, ¶ 1). During the second quarter of this year, one gasoline/oil company recorded profits each minute were in excess of what an average American earns in one year. According to Clifford Krauss’ article in the New York Times, “Exxon’s profits were nearly $90,000 a minute over the quarter” (2008, ¶3). Mr. Krauss’ article also states, “Record earnings for Exxon, the world’s largest publicly traded oil company, have become routine as the surge of oil prices in recent years has filled its coffers” (2008, ¶2). This is only one company; the other oil companies are showing earnings of the same, if not more. Americans are scaling back on...
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...Introduction to Macroeconomics 5 June 2011 High Gasoline Prices Cause and Effect Hurricanes, wars and all sorts of chaos could lead to shortages in our oil supply. These shortages would bring expected higher prices. But what happens when other factors are at work? The laws of supply and demand indicate “Quantity demanded rises as price falls, other things constant”. Or alternatively: “Quantity demanded falls as price rises, other things constant” (Colander 84). For some, it is easy to blame the speculators and separate them from the laws of supply and demand. In reality, speculators only changed who purchased the future supply. They did not change the principle fact that there was a shortage, albeit an artificially created one, but still a shortage. Until 2000 US energy futures were traded only on regulated exchanges within the US and they were subject to great oversight by the CFTC in order to detect price fixing and fraud. Recently, there has been a very large growth in trading contracts that look like futures contracts and are structured exactly the same. The only difference, these contracts are traded on an unregulated market. This unregulated OTC electronic market was exempt from CFTC oversight by a provision inserted in the late hours of the 106th Congress. Enron and many other large traders lobbied congress for this passage. By buying large quantities of futures contracts and pushing the prices higher speculators have given oil companies the incentive...
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...the concepts of price elasticity of demand and elasticity of supply to explore and explain the large fluctuations in the retail price of gasoline over the last 3 years. Use price elasticity concepts to explore the accompanying closure of many gasoline retailers. Also, discuss the impact of cross-elasticity of demand. According to various literatures petroleum is the single largest source of energy used in the United States. It is said that the USA uses two times more petroleum than either coal or natural gas and four times more than nuclear power or renewable energy sources. However, before petroleum can be used it is sent to a refinery where it is physically, thermally, and chemically separated into fractions and then converted into finished products such as the gasoline that is purchases at the pumps. Fluctuations in the average gasoline prices has been caused for concerns, this paper will attempt to look at this through the economic concepts of price elasticity of demand and supply to explain the fluctuation in gasoline retail prices in the USA over the past three years. Price elasticity of demand measures the degree to which unit sales of a product or service are affected by change in price. The demand for a product is said to be in-elastic if a change in price has little effect on the number of units sold. On the other hand demand is said to be elastic if a small change in price has a substantial effect on the number of unit sold. The price elasticity of supply...
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...Week 1 Eco 365 Article Analysis The name of the article on this paper is OP-ED: Falling Gasoline Use Means U.S. Can Just Say No to New Pipelines and Food-to-Fuel. Through this paper, we have to analyze the basis for the trends in consumption patterns. Consider the utility derived from a product or service mentioned in the article. Describe what has occurred to change the demand for the product or service and its market and equilibrium prices. Describe what has occurred to change the supply of the product or service and its market and equilibrium prices. In your opinion, is demand for this product or service price elastic or inelastic? What does this imply about how consumers respond to changes in the price of this product or service? According to an article from the Inter Press Service, gasoline consumption trends have been declining (Larson, 2013). The declined gasoline consumption has an effect on the utility that is derived from the product. There are different reasons for the decrease that include individuals using different means of transportation, use of other fuels, and decreased sales. Although the price of gasoline has risen, and is still rising, the product is still to considerably inelastic. The inelastic price on gasoline affect the economy in all ways. The decline in gasoline consumption has an effect on the utility of the product including the decline of usefulness of the product among consumers, but still needing the product for exports in the United States...
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...Keller Graduate School Business Economics 26 July 2014 Project I The price of gasoline fluctuates due to the price of crude oil. Gasoline is made from crude oil (found in the earth). Gasoline prices have been on the rise due to increasing crude oil prices. West Texas Intermediate (U.S) and Brent Crude (World) are two of the most important crude oil market suppliers (Dent & Sakurai, 2014). These organizations crude oil price is mandated by the Organization of Petroleum Exporting Countries (OPEC). Private business owner for gasoline stations seeks a higher maximum profit per gallon when prices increase. But, when the price of gasoline increases it affects the economy. Consumers are hit with a tight budget on their finances to sacrifice a gallon of gas. As, prices increase gasoline stations become competitive; usually prices are slightly close. Driving within my city, I notice that station prices are higher or lower, and as I research the topic gasoline it gives me a clearer understanding. It’s noticeable that the same amount of vehicles is at each station. From personal opinion, I believe it depends on the location (which side of the highway) and brand name. I’m a consumer that is more concerned with price; therefore if the station on the other side of the highway is offering a lower price, I’ll go the extras to get that price. Grocery stores have made it convenient for consumers to save at the pump, by turning one’s grocery bill into...
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...In 2005 the price of crude oil averaged $50.23 per barrel. In comparison, the average price for crude oil in 2004 was $36.98 per barrel. Fast-forward to the present, and the price of crude oil averages $77 per barrel. Additionally, taxes account for approximately 19 percent of the cost of a gallon of gasoline. In my state of Washington, each gallon of gas is taxed at 54.4 cents 1 and the average cost for a gallon of gas is $2.93 2 Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition. Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events, or domestic problems such as refinery or pipeline outages. Seasonality in the demand for gasoline - When crude oil prices are stable, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and fall in the winter. Good weather and vacations cause U.S. summer gasoline demand to average about 5 percent higher than during the rest of the year. If crude oil prices remain unchanged, gasoline prices would typically increase by 10-20 cents from January to the summer. Changes in the cost of crude oil - Events in crude oil markets were a major factor in an increase of gasoline prices for the past 10 years including present times 3. Crude oil prices are determined by worldwide supply and demand, with significant influence by OPEC who has tried...
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...Page 3 Consumer Response to Changes in gas prices Page 3 Price Elasticity Page 4 Suppliers Response to Price Changes Page 4 Equilibrium Prices under low price elasticity Page 5 What Causes Gas Prices to Increase Page 6 Opportunity Cost Page 7 Conclusion Page 7 Introduction Prices are set by demand and supply. When supply falls, prices rise quickly. The demand for oil continues to hit a record high. Countries like China and India are consuming it more frequently as they industrialize, but cars and power factories. However, the supply of gasoline has been restricted by certain requirements forcing oil refiners to manufacture different gasoline for an assortment of purposes. The price of gasoline reflects producers’ costs and consumer’s willingness to pay. Gasoline prices tend to rise if the cost to produce and supply such commodity rises, or if people decide to buy less gas at the current price (when supply is greater than demand). The price of gasoline will stop rising or falling when a price is reached at which quantity demanded is equal to quantity supplied by producers, otherwise known as equilibrium. Consumer Response to changes in the price of gas 3 The rising price of gas will affect consumer spending rather than significantly impacting the amount of gasoline being purchased. The major aspect of the consumer life affected by the spike in gasoline prices is the change made to their expenditures across...
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...bushel of salt a. What is the relative price of butter in terms of wool? 1 pound of butter exchanged for 2 yards of cloth and 4 yards of cloth exchanged for 1 pound of wool. Hence 1 pound of butter exchanged for 2 yards of cloth and 2 yards of cloth exchanged for 1/2 pound of wool. So the relative price of butter in terms of wool was 1/2 pound of wool per pound of butter. b. If the money price of bacon was 20¢ a pound, what do you predict was the money price of butter? 1 pound of bacon exchanged for 1 yard of cloth and 2 yards of cloth exchanged for 1 pound of butter. Hence it took 2 pounds of bacon to exchange for 1 pound of butter. As a result, if the money price of a pound of bacon was 20¢ the money price of 1 pound of butter was 40¢. c. If the money price of bacon was 20¢ a pound and the money price of salt was $2.00 a bushel, do you think anyone would accept Mr. Gregg’s offer of cloth for salt? If the money price of bacon is 20¢ a pound, Mr. Gregg’s offer to exchange 1 pound of bacon for 1 yard of cloth means that anyone could obtain 1 yard of cloth for a money price of 20¢. Mr. Gregg’s further offer to exchange 8 yards of cloth for 1 bushel of salt means that anyone could acquire 1 bushel of salt for $1.60, the price of 8 yards of cloth. If the money price of salt is $2.00 a bushel, many people would accept Mr. Gregg’s offer of cloth for salt because it enables them to obtain salt at a money price of only $1.60 a bushel. 2. The price of food increased during the past...
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...1. Everyone’s Gasoline Problem. United States consumers have experienced some dramatic increases and wide fluctuations in gasoline prices over the past several years (Federal Trade Commission 2005 Report). This Fluctuating gasoline price is as a result of several factors. It is reported that the price of crude oil which is gasoline’s primary ingredient has a massive influence on fluctuating gasoline prices. It is believed that about 50% of the cost of gasoline is influenced by the cost of crude oil. Crude oil is a commodity traded in the open market. If crude oil price rises, then there will be an increase in the price of gasoline and vice versa. Gasoline prices are subject to the ordinary forces of supply and demand. If there is a continuous reduction in demand, gasoline prices will significantly drop and if there is a continuous increase in demand for gasoline then prices will obviously rise. Therefore, gasoline prices rise if it costs more to produce and supply gasoline or if consumers are willing to purchase gasoline at the current price – that is when demand is greater than supply. On the other hand, prices for gasoline will fall if consumers are willing to buy less gasoline at the current price- that is when supply is greater than demand. (Federal Trade Commission 2005 Report). There are other factors that influence the price of gasoline like political unrests such as recent ones in the Middle East. Refinery breakdown can temporarily spike...
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...Gas Prices and the Economy The marketplace of supply and demand determines the price of fuel. If demand grows or if supply decreases, there will be an increase in pricing. On the flip side, if demand declines or if there is a surge in supply in the market, there will be a decrease in pricing. If a retailer in the market prices its gas too high without regard to competitors’ pricing, consumers will take their business to the competitor with lower prices. If the retailer loses enough business due to higher pricing, they will lower the prices to be more competitive in order to retain customers. Retailer competition affects gas pricing which can be seen by price differences on stretches of highway with multiple gas retailers. More choices generally mean more competition for the retailers. Even though many retailers carry the gasoline of major oil companies, they are independent dealers of the product and can set prices as they wish. The cost of foreign trade is contributes to the rising cost; however, many other factors contribute to the pricing of gasoline which drastically affects buyers and sellers in the marketplace. According to the Chevron Corporation, like agricultural products, such as wheat and corn, and precious metals, such as silver and gold, crude oil is traded on the world market. Recently, crude oil prices have risen dramatically, driven by rising global demand and political instability in several oil producing countries (“The Price of Fuel…”). Since crude...
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...many different elements that contribute to rising gasoline prices. The major cause for increasing gasoline prices has to do with refining capacity. Even if oil were inexpensive, we would still have a problem converting it into the gas that fuels our economy. That is what keeps the gas prices high. When gas supplies are short, due to an “inability to refine crude oil into gas efficiently,” prices increase. This is a component of supply and demand economics. In a positive aspect, rising gasoline prices do serve a purpose; they curtail usage so that we do not eventually run out of fuel. If gasoline continued to retain its cheap price, despite how much was available, people may pull up to their favorite gas station only to see caution tape around the pumps because frequent consumers would not curtail their consumption. Contrary to what some think, gasoline isn’t the only product refined from crude oil. In his article “Gas Prices Rising”, Matt Rosenberg wrote that, “Only about 51.4% of an oil barrel is used to make gasoline; the rest of the oil is used to make other products such as jet fuel, asphalt, road oil, heating oil and liquefied refinery gas” (Para 3, Rosenberg). This makes oil a high demand commodity around the world and because most countries don’t produce enough oil of their own, they have to import it from other countries that have more than they know what to do with. This also creates a global market in which prices can fluctuate depending on who needs oil and how...
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...Contents: Page Introduction ……………………………………………………………………………………………. | 2 | Overview ……………………………………………………………………………………………….. | 2 | Relevant Information ……………………………………………………………………………….. | 3 | Determinants of Demand, Supply …………………………………………………………………….. | 4 | Relevant Data ………………………………………………………………………………………….. | 7 | Recommendations……………………………………………………………………………………. | 9 | Economic Justification ……………………………………………………………………………….. | 9 | References …………………………………………………………………………………………….. | 11 | Introduction Overview Cousin Edgar needs to understand/decide if he should invest in buying two gas stations. He must consider the high costs of pursuing this idea on business and to try to recover his costs quickly. If the cost of gasoline is taken as a measuring rod then he needs to understand if he can earn enough to recover the costs of investing. Starting a gas station business can be one of the best decisions Cousin Edgar can make as an entrepreneur. He can either set up new gas stations or buy gas stations for sale. If he decides to buy one then he must have some knowledge about how to buy a gas station and if he is planning to set up new gas stations on his own then he is going to need to do some serious research as to how he can go from start to launch. He needs to consider doing lots of research and checking out numerous gas stations for sale before starting up. One of the first steps is to choose a location and find a property. It is important to find a location...
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...The Effects of Petroleum Prices on the Economy Crude oil prices have taken a dive in the last month, causing the gasoline prices to plummet. Consumers are more than ecstatic to see the prices fall, but this current trend in prices will undeniably be short term. For most of us the prices of petroleum is only apparent at the gasoline pump, but there are multiple products affected such as diesel and heating oil. The intent of this paper is to focus more on gasoline prices, supply and demand of gasoline, and elasticity demand of gasoline, externalities, regulations, and taxes that have put into place regarding gasoline. Also, explaining the underlying origin of such a histrionic change will give a better perspective to all consumers. Let’s start by explaining what OPEC is and their involvement in the petroleum market. Organization of Petroleum Exporting Countries (OPEC), is an intergovernmental organization consisting of Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, and Angola ( Brief History, 2015). OPEC was established in 1960 with five original countries and has since added numerous more. The initial and current objective of the OPEC is to maintain prices that are both consistent and protected for the producers of petroleum. OPEC intends to supply the consuming nations with petroleum while gaining a just return on capital to those investing in the industry ( Brief History, 2015). How have changes...
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