I would like for you to read the two provided articles, each concerning gas prices. The first article talks a great deal about the future of gas prices. Ignore the jargon (futures? quantitative easing?) and focus on his message, which should come through with a couple of readings. The second article discusses the affect of oil and gas prices on the economy, and puts particular attention on the (somewhat) counter-intuitive idea that lower gas prices could actually hurt the economy.
Using what we have learned about equilibrium in class, answer the following questions in your post.
- What is currently happening to gas prices? What are the economic reasons for this? (Hint: what is causing the curves to shift?) Be specific as to what curve you are shifting.
- What are the benefits of falling gas prices? How do they help the economy overall? Use equilibrium in your answer.
- Are there any problems with falling gas prices? What are they indicative of?
- Based on your (perhaps rudimentary) knowledge of current events and economics, what do you think will happen to gas prices throughout the duration of this year and into next?
The first blog post is due by midnight on Saturday, October 1st. The second post will be due by midnight on Sunday, October 9th.
Addendum: Here is an article that talks about gas prices for the most recent week. I am curious as to how you all feel about the ideas put forward by some of the economists/analysts. In particular, look at the following:
Addendum: Here is an article that talks about gas prices for the most recent week. I am curious as to how you all feel about the ideas put forward by some of the economists/analysts. In particular, look at the following:
- Many of the analysts talk about Americans changing their consumption habits. Do you really think that oil consumption habits really changed in just a few months? What does this suggest to you about the elasticity of oil/gasoline?
- The analysts also talk about shocks in Libya. The country still remains in turmoil, so how much credence do you give their theories concerning Libya and oil prices? And is Libya a supply or demand shock for oil?
Again, please post by Sunday at midnight.
46 comments:
I'm not exactly sure if I understood the first article. In fact, I stand positive in the fact that I didn't. However, according to my general knowledge of automotive financing and the little bit of information I did absorb from the articles, I can say that prices at the gas pump are expected to go down in the near future. This is because all of the big oil companies are now able to purchase more oil for a tad less amount of money from the crude oil guys. The prices went down for the big businesses, therefore the quantity supplied is increasing, causing the prices to go down for the gasoline customers, and also creating a positive shift along the demand curve. I think. These now psychotically low gas prices initially allow customers to spend less money at the gas pump, leaving cash in their pockets, and promoting them to spend more money in a variety of places because they end up having more money that they saved. Circulation improves, and the point of equilibrium shifts to the right because both customers and suppliers reap the maximum amount of benefits. Everyone is happy and moves to a nice suburban area, driving their four cars down the street because they can now afford gas. Or not. Because according to the second article, which I think I understand, falling gas prices can lead to deflation. And according to Wikipedia, some of the effects of deflation are as follows: recession, decrease in investment and savings, hoarding of money, and consequently a development of a snail's-pace cash flow cycle. I don't think I know much about this topic, which may be evident in the preceding babble of verbiage, however in an attempt to answer the final bullet, I think that in the upcoming months, gas prices will creep downward until they hit a brick wall, due to a change in supply or something, and then they will sky rocket again to a level that will be deemed unacceptable and overly expensive.
Oil prices are dropping. The cost to import oil to America is lower, so we will be able import more oil. This shifts the supply curve right, making the price of gasoline decrease. Quantity demanded will also increase.
Falling gas prices tend to benefit consumers the most, at least in the short run. It allows consumers to do what they want with their money more freely. They can chose to save the extra money that they are not spending towards gasoline or they can buy other goods and services. Buying more can help stimulate other aspects of the economy. If people aren’t dedicating most of their money to gas, they can put it towards other things, benefitting other businesses. If the demand for other products increases, quantity supplied and price of the products can increase. This creates a new equilibrium.
As Annalyn Censky said, “Low gas prices can sometimes be more a symptom of a weakening economy.” Unfortunately for those people who struggle with high gas prices, the rise of prices in gasoline is inevitable. Gas prices will always be changing, well until the good runs out. People may also be in the habit of trying to use less gasoline and only buying it when absolutely necessary. When the price falls, they could still practice this for the environmental benefits. Maybe they found alternatives, like carpool or buses. This would decrease the demand in gasoline.
I have always been basically oblivious to the reason behind the shifts in economy and other current events. Of course, as I am starting to drive more, I may actually spend some time attempting to understand the fluctuation. I believe that once people start to adjust to the lower gas prices and benefit from them, the gas prices will rise again. This will be the effect of other economies in the world stabilizing and thus being able to ask for higher prices for oil.
According to the articles, gas and oil prices are currently starting to go down. Because the prices are going down, major companies are able to purchase more than this cause the supply curve to shift to the right because we can buy more amounts of oil for less money.
The major benefit of falling gas prices is putting more money into the pockets of Americans. Almost every american needs to buy gas, they just cant get around it, so paying less money for it will give them more money to spend. According to the article, "for every $1 decline in the price of oil, American consumers have an extra $3 billion," which ideally, they will put towards buying goods and jump start the economy. The lower prices also help the market for gas move toward being at equilibrium, and if it is, then both the consumers and suppliers will be getting maximum benefit. I think that in the future, gas prices will slowly fall as they have before, but then something will most likely happen that will drive prices back to up even higher than they are now. But it is very hard to predict what will really happen to gas prices, because it is a market so dependent on so many factors.
Gas prices are currently increasing because the global economy is gradually recovering. People are starting to earn money again, and the lowering of prices following excessive inflation of prices due to quantitative easing means that people are starting to demand more oil/gas. With winter ahead, gas prices will increase additionally because of the cold weather. The demand curve will shift right, in other words it will grow, because of the aforementioned economic and environmental factors. Low oil and gas prices can benefit consumers because it saves them money, $3 billion for every $1 fall in gas prices on average. Lower gas prices mean Americans have more money in hand to spend. If gas prices fall, quantity demanded will gradually increase and the equilibrium shift will increase consumer surplus. However, low gas prices can also indicate deflation which causes consumers to again stop spending, and is what partially caused the recession in the first place. I think that oil and gas prices in the next year will increase slowly because the economic turmoil has quieted down for the time being, a partial government shutdown was recently overted, winter and cold temperatures will increase demand, and conflicts in large oil producing nations like Libya, Iran, Yemen, and South Sudan will make extraction and delivery more costly. Hopefully, prices will hover between $80 and $100 per barrel.
Currently, gas prices are falling. The cost of importing oil dropped so the supply curve shifts to the right due to a change in one of the necessary parts in selling oil. This lowers the equilibrium price which is a good thing for consumers because more people are able to afford the market price. This also creates more consumer surplus which can help the economy overall by leaving money that could have been for gas in consumers pockets. According to the CNN article, "The rule of thumb is that for every $1 decline in the price of oil, American consumers have an extra $3 billion to save, spend or pay down their debt over the course of an entire year." If Americans have an extra $3 billion in their pockets, that could be enough to jump start more spending which is exactly what our economy needs. Falling gas prices, however, are not always a good thing. According to Phil Flynn, rising oil prices indicates that the economy is recovering while decreasing oil prices shows that there are still major cracks in the economy. He also indicates that the demand curve with shift right in the next few months with winter approaching. This would cause an increase in equilibrium oil prices but if oil prices fell it would indicate a drop in quantity supplied which would not be good for consumers. Based on my knowledge of current events and economics, I think that gas prices will stay fairly steady where they are now at least through the holidays if the government has anything to do with it. By keeping gas prices low, this would hopefully encourage Americans to spend more during the holiday season to boost the economy. As primary elections approach in the beginning of 2012, gas prices should stay fairly steady as well. As seen through past elections, presidents try to keep prices steady and low as to put other issues in the forefront of the political debates.
More oil is being produced, which causes a rise in supply. This means that the oil will be sold for less. If oil drops in price, demand for gas will also rise because people will be willing to buy more if they know they are paying a cheaper price. Gas curves follow the oil curves, so any change in the oil curve will also occur on the gas curve.
The main benefit to falling gas prices is a lower equilibrium price, which results in more spending money for the consumer. When the oil companies are supplying oil for a lower price, they are shifting the supply curve to the right, which causes a downward shift in the equilibrium price. If this trend of lower gas prices remains stable, which is unlikely, people would have more money and hopefully the economy would benefit drastically.
As the second article stated, sometimes falling gas prices means the weakening of an economy. If oil prices drop enough, that could mean deflation. When this happens, people will stop spending, which could be detrimental for our economy. This could be very dangerous and may result in a worse recession.
I do not think gas prices will remain low. After a few weeks, oil prices will rise and gas prices will rise. Once people being to buy more gas and become more dependent on it, oil companies will raise prices and people will no longer benefit.
In a nutshell, crude oil dipped lower than $80 dollars a barrel and shortly after bounced back above $80. This in large was a result of the recession and expectation's of distributer's of future markets. The major benefit of decreasing oil prices is more money in the consumer's wallet. While there are positives associated with falling gas prices its also indicative of a failing economy or worse conditions ahead. The real problem that comes with decreases in oil prices is when consumers stop buying oil the same time prices decrease, which causes almost a producer/consumer stalemate. Luckily oil is fairly inelastic and no matter the price change people will continue to buy it. Even if it wasn't inelastic a decrease in the supply curve would be balanced out with an increase in the demand curve(when consumers get more spending money). Again if consumers fail to spend they will create a decrease in their demand curve ultimately lowering the equilibrium for crude oil.
Car water (gasoline) has always caused trouble, especially in the present day. These blogs on issues relating to automobiles have been rather taxing; I simply cannot relate as I use other forms of transportation. I have actually started taking flights on Astral Hawks; they charge a shilling or two for their service but I have no worry in regards to the issues caused by the wheeled creatures.
Bullet 1: The cost of car water is decreasing quite a bit lately. The price of crude Earth milk has dropped, thus the companies who use it to make gasoline have been able to buy it at a lower price/ import more from the lands of Asia. This shall cause an increase in the quantity supplied. Since car water is less scarce, the price shall drop. The lower price of the car water will lead to an increase in the quantity demanded.
Bullet 2: There are many benefits to a drop in car water prices. For one, more of it can be bought because it is cheaper. Before I raid the lands of Asteroth I always wait for oil and car water to become cheaper so I can burn my otherworldly foes without burning a hole in my coin purse. The falling prices also allow folks to buy other goods without worrying so much about the cost of car water. The demand for some other products, like hand and a half swords, Uilleann pipes, and health potions will shift to the right. This shall create a new equilibrium in the bazaar (market).
Bullet 3: There are some issues that are caused by falling price of car water. If the price falls, it is often a sign of a weakening economy. Deflation is bad and can lead to recession.
Bullet 4: The price of car water always goes to and fro it seems; it never really remains constant. This reminds me of the Horse of Alabain. The beast is quite unpredictable, and the villagers who have spotted him always debate about where he will run to next, when really it is impossible to know. The same is the case for car water. All of this confusion still leads me to say that everyone should avoid it altogether and use spirit carts or stunted dragons. Anything but infernal automobiles.
Gas prices are decreasing because of a shift in the supply curve to the right; there is not much change in demand. The benefits to falling has prices is that you can get "more bang for your buck." Meaning it won't cost you as much to fill up your tank. This causes equilibrium to be at a lower price; thus affecting more American made products becaus they can ship their product at a lower cost because it will be less expensive. This will boost the economy. The only bad thing about gas prices decreasing is that it could mean we are going to experience a oil shortage. The article stated that the heavier grade oils are soon going to hit a chordate in the middle east; but, the lighter grade oils in Asia are more available. I believe that gas prices will be on the rise again soon. Once people begin to be able to afford to fill up a full tank instead of half, the demand for oil will rise causing priced to rise.
The price of gas is currently decreasing. From the articles, I believe the price is going down because of "quantitative easing," which I assume is a shift to the left of the demand curve. Also, Asian refiners are anticipating an increase in demand during the winter. The benefit of oil prices going down is people can spend more money on other things that could benefit the economy. The problem with falling gas prices is it is a sign of deflation, showing that people are afraid to spend their money on larger investments. Over the winter, gas prices will continue to fall, then next summer they will rise higher. This is just the trend that I have noticed over the past couple of years. And not until the economy becomes stable will gas prices become stable.
Currently the gas prices are increasing, but they are constantly fluctuating. The supply curve of gas and oil is what is shifting. The benefits of falling gas prices is that then consumers will have more money to spend and that will help to balance the equilibrium of other departments. The primary issue with the economy is insufficient consumer spending, so by giving the people more money to spend with when the gas prices are lowered it levels out the plummeting economy. Falling gas prices can sometimes be a sign of a weak economy because many times it can cause deflation. I think that gas prices will continue to fluctuate as they are now because the supply will continue to rise and fall and the demand will remain consistent as it has thus far.
Currently the gas prices are going down. The reasons for this is the supply curve is being shifted to the right because of a bigger production of oil in Asia. The benefits of the falling prices is the consumer is saving money to spend elsewhere. This might help the economy but I doubt it. If the consumer is spending the money elsewhere it possibly could help bring us out of the recession. The equilibrium would be changed because if the quality supplied increases the
rice will fall and cause s new equilibrium point. The falling gas prices might be a sign of a weakening economy. I think the prices of gas in the next year will fluctuate depending on what time of year it is and the consumer demand.
As the season shifts from summer to fall, so too do the gas prices from high to low. Demand decreases as less vacations require less fuel, and so equilibrium adjusts itself; or so I thought! The first article cites the increase of Middle Eastern exports (of oil, of course) as the driving factor. The increase in the amount of available oil is making it cheaper by the barrel; price and demand have that inverse realtionship going on.
Benefits? Well that's easy; spending less on gas frees up funds to spend on other things. It works as a natural stimulus package. As for the national economic benefit, the only one I can think of is basicly a reiteration of my previous exaple at a larger scale. In terms of equilibrium, it's going to shift right, so overall better for consumers.
In reality, I think the con's outweigh the pro's and I'm gonna back up the author of the second article. Any economic activity that deviates from the norm a significant amount is something to be wary of. Deflation, which is the culprit in this case, will only serve to stagnate to economy and bring us down into recession. Which is indictive of a weaker economy.
Looking towards the coming months, I'd place my bets on a rise in gas/oil prices. It had been my belief that because Americans aren't making as many roadtrips in their meager free time, that they wouldn't use as much gas. I was forgetting, though, that demand for fuel to heat buildings is going to spike. It is evident in both articles that American consumers are going to keep clamoring for gas, and because consumers are doomed to reside in a circular economy, oil prices will rise again. Especially because of the cold. But it WILL get warmer, and we WILL still be in school/working so prices are gonna dwindle. I think it can be expected that oil will always be an elastic good, so we will always see a rise and fall pattern.
Gas prices have been dropping as of late, down to $80. This will cause the demand and supply curve to shift right, because people need oil for the winter in the winter and the US wont have to pay as much taxes on the oil. There are many benefits of falling gas prices. For example the obvious reason is people wont have to pay as much for gas. This helps the US economy because there will be a higher supply of oil for cheaper. The equlibrium will shift to the right and upwards. The only problem with falling gas prices is the countries selling gas will not make as much money. Also there might not much of a supply of oil because people will be buying it fast. I believe that gas prices will shoot back up into early Febuary because the demand for it is going to rise, but then go back down because the price went up to a point where no one was willing to pay for it.
At the moment gas prices are lowering as a result of predictions of future events. Oil traders expect that demand for gasoline and oil will fall, so they are attempting to sell oil quickly at a lower price. This sell-off shifts the supply curve to the right. This shift increases the equilibrium quantity of gas and decreases the equilibrium price. Perhaps the most significant benefit of falling gas prices is the amount of money that consumers now have to spend on other things. According to the article, American consumers have $3 billion for every $1 decrease in the price of oil. The problem with the price of gas falling is that it is caused by lack of faith in our future economy. Not only do gas-traders have concern for the future, but consumers also have concern. This will cause consumers to save their excess money instead of spending it on goods and real estate that keeps our economy rolling. I predict that gas prices will continue to fall as the economy loses momentum, but the price will fluctuate in the process as a result of changing supply and demand.
Gas prices are increasing. AND WE CAN THANK O.P.E.C. FOR THAT. The oil and gas market is extremely inelastic, so it's very easy to be exploited by the producers. I think all the oil problems this nation is facing would be solved if the noose of foreign oil dependency was removed from our neck. But anywho, for the sake of this blog I'll play nice. Here we go...
The recession is decreasing the demand for oil. The available income of the American consumer is limited, causing the consumption of oil to decrease. Falling gas prices would allow consumers to have more money to spend, jump starting a fledgling American economy. However, in order for a lower price equilibrium to be found in the oil market, the suppliers have to play ball and be willing to take a decrease in profit. Something they clearly aren't willing to do.
Falling gas prices would be an indication of that the quantity demanded of oil is low. An indication that the economy is doing poorly. I don't see gas prices going down in the future. The political turmoil in the Middle East and the inelastic nature of the oil market makes it a pristine market to be milked for all the cash it can make.
I skimmed the first article because the author obviously knows way more about oil prices than he does about comma use (needlessly complex sentence construction + missing commas = >__< ). The second article thankfully made it clear that gas prices are currently decreasing due the drop in the price of crude oil. Since oil is a major cost in gas production, the drop in price shifts the supply curve of gas to the right, hence the decrease in the price of gas. The falling gas prices are beneficial to consumers because consumers are saving money that can then be kept or used for other goods. They are paying less because the demand curve remains stationary, so the rightward shift of the supply curve means that the equilibrium price of gas, that is, what the price will naturally settle to, will be lower, which means cheaper gas and a fuller wallet. The saved gas money will likely help the economy because increased consumer spending money will lead to an increase in the demand for other goods, which will eventually create new jobs. Falling gas prices,though, are indicative of the uncertainty of oil traders. They are selling off their oil at a lower price in fear of a demand decrease for gas, and this fear can be contagious, causing consumers to save their money and businesses to stop hiring. I think gas prices will continue to slowly decrease for a short while, but Arab oil traders will quickly forget about economic concepts once they realize that Dubai could use some more artificial island chains and 7-star hotels.
All that I really got from the articles is that gas prices are a little lower than usual. This decrease in price is thanks to a dip in crude oil prices. With cheaper oil, gas companies can purchase more oil, increasing the quantity supplied, and decreasing prices of gasoline for consumers. Graphically, the supply curve shifts to the right, creating a new equilibrium point with lower price and greater quantity demanded. Theoretically, lower gas prices can be good for the economy. If people are saving money on gas, they are getting more cash in their pockets for getting themselves out of debt, or just overall economic stimulation. However, history has shown that rising gas prices are inevitable. As soon as other markets stabilize, oil companies will be able to ask for higher oil prices, thus making gas prices higher again as well.
Currently gas prices are decreasing because there is an increase in the supply of oil, thus making it less scarce. Oil is like an input price for gas, so when the cost of importing oil decreases, the supply curve for gas shifts to the right since producer are able to make gas for a lower cost.
The benefits for falling gas prices for the consumers is that they save money. In the second article it said "for every $1 decline in the price of oil, American consumers have an extra $3 billion to save." With this extra money consumer are able to spend more or pay off their debts. Having more money, essentially means that consumers have more income to spend. This means that their demand curve shifts to the right, and due to the demand curve shifting right, the equilibrium price and quantity(for products in general) will increase. This also helps the economy because it stimulates through spending which helps businesses prosper and that leads to more jobs.
Falling gas prices aren't always a good thing because it can be an indicator for deflation. Deflation can cause the economy to "freeze up".
I think that gas prices will increase either because the U.S.(and world) economy will begin to stabilize or because things such as increasing government problems in countries from where we import oil.
(My apologies for the tardiness.)
The dude who wrote the shambles that was the first article obviously does not understand how to use the English language, because reading it was like trying to make sense of gibberish. Apparently, Phil Flynn believes putting random words next to each other makes them a sentence, though I’m impressed that his words vaguely have to do with economics.
Granted it’s only about four awful paragraphs long, this article can be entirely summed up by its last sentence. Basically, what the author is trying to say is that the prices for importing oil have leveled out and reached what is most likely the lowest price possible per barrel, i.e. eighty bucks. And since the cost of production has sunk so low, Asian oil companies are increasing their supply of oil (a shift to the right for the supply curve) in order meet the coming winter season; this, coupled with rising demand (another rightward shifting curve) caused by lower prices, will eventually reach a new equilibrium in terms of the global market.
The companies are keeping their prices low in order to keep demand from falling, but low prices can be taken one of two ways. Either the lower equilibrium price is resulting in consumer surplus, which would boost the crippled economy, or it’s evidence that the big-shot oil companies are scared witless of a decrease in demand, and the economy could be further paralyzed by hesitation on both consumer and producer’s part.
In the second article, Annalyn Censky uses the phrase “driven by fear”, which is an apt way to describe the global economy at this point. Everybody involved in the circle of oil production and consumption is afraid of what would happen should the economy worsen. As with the 2008 recession, it seems that prices will continue to fall, whether drastically or not, through 2011 and possibly early 2012, at which point the determinants of price will likely have changed and they might rise again.
Currently, gas prices are falling because people are buying less so there is less quantity demanded which causes the price of the product to fall. The benefits of the prices falling is people will have more money to spend and will be able to use it for what they need. A problem, though, could be that people will be unsure of the economy and start to save their money more instead of spending it which would be indicative of a falling economy.
Well obviously Lafakis didnt foresee that a bunch of high school seniors just beginning ap econ would read his mind boggling statements. I think the article provides a pessimistic view about the fall of gas prices when 99.9% of the world will be highly optimistic. Mr. Long (shout out) said it best when our knowledge of economics and gas prices is rudimentary. I always believed gas prices would fluctuate depending on the consumption of gas. When gas prices are high, people tend to save gas whenever possible, cutting back on all unnecessary trips. In this situation, the falling gas prices gives people more spending money. This would lead to more people driving down to the mall to pick up that latest gadget, or better yet people may decide to drive to every Ravens game, home or away, since the Ravens currently lead the jets at the half. This increased driving would eventually lead to a rise in gas prices yet again. Overall, the demand would dictate the price of the diminishing supply of gas. BUT lets not go crazy, people aren't going to tremendously use gas like that commercial where gas powers all computers and dentist equipment, otherwise the equilibrium price of gas would be much, MUCH higher.
I think oil consumption has changed a little in the past few months but not drastic enough for a big drop in oil prices. This tells me that oil is becoming more elastic now because fewer people are driving SUVs and consuming massive amounts of oil. I think as we near towards the future oil will become a lot more elastic because of the newer fuel efficient cars and less of a demand for oil. I think its surprising that Lydia can change the market that much especially if they only contribute 2 percent to the oil market. It gave us more of a supply of oil.
Habits are behaviors that people grow accustomed to over time. Thus, they are not easy to break. Yet, with willpower we can change our practices. I do not believe that a majority of Americans could change their gas buying habits so soon. However, there are many Americans that were forced to search for alternatives because of low income. If these learned behaviors were to become new habits, then they could be difficult to break. This could ultimately be a healthy habit. Initially, I would say that oil was a rather inelastic good. People may not have realized the gas prices when they first started to rise. Plus, if you are out on the street with your gas tank almost on “E,” you’re not going to resist getting gas. As people started changing their gasoline intake habits, I would presume that oil was becoming a more elastic good. Prices were high, so people needed to find more options. As price was increased for a long period of time, quantity demanded decreased.
Since Libya is still in mayhem, hence I do not give much credit to the theories regarding Libya in the article. According to http://www.energyrefuge.com/archives/where_oil_comes_from.htm, a potentially even less credential website, Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, Angola, Iraq, Algeria, United Kingdom, and Brazil are the United States’ top ten importing countries for oil. Libya isn’t even on the list. Libya is in a supply shock since they have a fascinating TWO percent output for oil.
I don't think all of the effects are from drivers changing their habits. Some are because the government now requires a higher amount of miles per gallon to be sold. I think other parts are not from drivers changing their habits though because people are just trying to use less while the prices are high but when the prices lower people will go back to the amount of gas that they usually use and this will shift the demand curve again and cause the prices to go back up. The prices going up and back down is a sign of gas being an elastic product because it shows that the quantity demanded is effecting the prices greatly. Libya is still a supplier, though, even though they only supply 2 percent of the world's oil, since they have oil that is easier to use and they give it out to other countries.
I think a raise in gas prices definately changes oil consumption habits in a few months. First, people start to carpool more. Or, they take less unnecessary trips to places. People who are already buying new cars tend to buy more efficent cars rather than 12mpg trucks. So, a shift to the left of the supply curve is quickly counteracted by a shift to the left in the demand curve. Also, this shows that the elasticity of gasoline is very inelastic over a short period of time (within a couple of months), but over the course of 6 months or so oil becomes elastic and people change their price they are willing to pay as the price changes. I do not give much credence to the Libyan crisis. First, Libya only supplies 2% of the world's oil. So, oil companies are manipulating the crisis in Libya in order to raise the gas prices for an increased profit. This change in prices will be inelastic because people will assume the Libyan crisis will end and gas prices will return to normal eventually so they will still consume the same amount of gas at a higher price.
Oil consumption is about as regular as morning prayers. Americans have a lifetime of oil consumption habits that are deeply ingrained in them, to say the least. Citizens are still willing to pay outragous amounts of money inorder to be ineffecient gas users. Until mass transit becomes the only transit, and until hybrids are the only the only passenger vehicle getting high of fossil fuels, America remains dependent on our oil fix. If it was true that American consumption of oil has been effected by prices it would suggest that the market is elastic; however, we all know it isn't, so the marktet is inelestic in nature. Lybia produces 2% of the world's market of oil. They might as well be the ugly redheaded step child of the oil family. Their conflict is a dinky supply shock.
I do believe that people do change their habbits in as little as a few months; but, gas prices are still high. This shows that gasoline is elastic. You do need gasoline, but since prices are so high, people will buy less. This shifts the demand curve. If Libya is responsible for diesel and only 2% of it, how does this effect gasoline prices? This theory is complete bologna. Libya is a supply shock for oil. If we can't get diesel because of the "turmoil", this should only effect diesel, not regular unleaded gasoline. Like I said, this theory is ludicrous.
I do believe that Americans are slightly changing their consumption habits in certain ways. I have noticed a drop in the number of Hummers on the road and an increase in the number of small cars, but I don’t necessarily think that people are choosing to purchase new cars. I think the majority of people who have Hummers have enough money for more than one car, and they are choosing to drive the more fuel-efficient car as an alternative. While some people may be choosing to purchase smaller more fuel-efficient cars, I think more people are taking public transportation or carpooling. Although these options decrease the demand for oil, there is still a very large demand because almost all cars function from oil alone. When electric cars replace a significant portion of gasoline cars and people move close to everything that they need to live, oil will become a very elastic good, but as of now it is relatively inelastic.
I think there are many factors involved in determining the price of oil, and the situation in Libya may not be playing as much of a role as consumer demand. Although Libya produces a special type of oil, it is still a very small proportion of total oil, only 2%. This may not be making a huge impact on the economy. The aspect of the economy that Libya could have an effect on in this situation is supply, because Libya supplies oil to the rest of the world.
You can always expect Americans to continue to use oil and gas. Just because it has increased or decreased a bit it will not effect oil consumption. As Americans we pride ourselves in indulging in life's luxuries. This is why in the short run oil is very inelastic and people are willing to pay as much as necessary until they learn to adapt to the change. Then the idea that Libya has caused much of the shifts in oil prices is bogus. It makes up about 2% of the worlds oil supply. It has very little impact on the world in general. In the future if oil prices continue to increase that is when there will be real trouble. The price of oil will then become very elastic and that is when lots of money will be lost.
I believe that over the first few months of rising gasoline prices Americans did not change their habits, making gasoline inelastic, but over a time period of 6-7 months, Americans have altered their ways. Maybe they didn't take as many road trips over the summer or realized they couldn't afford the gas of their SUV and traded in for a different model. Carpooling could also be an explanation and even has some appeal due to HOV lanes in highly congested areas such as 495 and parts of 95 near D.C. With the added burden of high gas prices to a potentially terrible commute to D.C., carpools make sense. By realizing the cost over time of such high gas prices, Americans have changed their habits in order to stay within their budgets. The median income in 2006 was $50,233 according to the U.S. Census Bureau. With a recession, I can't imagine it has risen much in the last five years, only fallen. Americans simply do not have the money in their yearly budgets to pay for gas at $4.00 a gallon in a car that will only get 15 miles to the gallon, changing the habits of the average American.
I do not think that the oil output from Libya section of the article has much credibility. By only supplying 2% of the world's oil, you could say it may have a bit of an impact on the supply shock of oil but not by very much. According to the U.S. Energy Information Administration, Libya is not in the top 15 Crude Oil Imports or the top 15 Total Imports of Petroleum (http://205.254.135.24/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html).
I disagree with the experts who say that Americans have changed their consumption habits. We live in America; there will always people who want the largest cars simply to have the biggest vehicle. I also think our society is so dependent on oil, the consumption will never change so dramatically that it results in a drop of price in gas. In this case, gas is an inelastic good, because when the price changes people still purchase it. If there were cheap, accessible electric cars, then maybe consumption habits would change, however, this technology is not readily available at this point in time.
The uncertainty of the situation in Libya caused a rise in the prices of sweet crude oil. This situation made speculators raise prices because they thought there would be a loss of supply of this oil. Although this only accounts for 2% of the world's oil supply. As Verleger said, this caused a rise in the price of gas and diesel prices. The thought of a dramatic supply shock, caused oil companies to raise prices in the beginning. Then, the situation, which is still going on, did not have as large of an effect as it was though to have had. This is what caused the drop in gas prices.
Americans are definitely not drastically changing their consumption habits. Its nonsensical that the article would talk about Americans buying more fuel-effiecient cars. Although there has obviously been some increase in the number of fuel efficient cars bought, in a bad economy such as this, most Americans cannot afford to go out and buy a brand new hybrid or electric car. I believe that oil consumption will start increasing again, especially if the economy continues to improve. I know my family personally has not drastically cut our oil use. I believe oil therefore is a fairly inelastic good. If prices got as high as $6 then we might see consumption reduction, but when oil is less than $about 4.50 a gallon, changes in consumption are negligible. The turmoil in Libya caused a supply shock becuase refinieries were in danger, but now that the Transitional National Council has secured all major oil refinieries and exporting seaports, Libyan output should return to pre-revolution levels. This is the second time I've submitted a comment...I think my first comment was better, but apparently it did not show up on the blog.
I think that oil consumption went down a little but mostly because people are not going on vacation as much. This suggests that gas prices are pretty elastic because when the price per gallon increased less people bought. Their theory about Lybia is slightly valid because turmoil would cause oil prices to rise, but with their little output the effect on the gas price market would not change much. Lybia also effects the supply of oil because they supply oil all around the world.
I think that oil consumption habits can change in just a few months, although not by much. People start thinking about those long road trips they were going to make or perhaps taking the bus when gas prices increase and how much money it is going to cost them. This change in habits can also come from the fact that people's income has dropped and due to the fact that there is a ton of more unemployment, there is also a lot less commuting to work. These slowly changing habits show that gas is inelastic in the short term but over a period of time it becomes elastic.
I don't give much credit to analysts' theories on Libya because Libya is only 2% of the world's oil supply, which seems like a very small amount in the total supply of oil, and Libya is a supply shock.
Regarding the first point, I think there could be some truth in the claims of changes in oil consumption. It's obviously not going to be a fast process for people to switch to more fuel efficient cars, but even driving an older car, there's usually room for improvement in terms of cutting out unnecessary trips and carpooling more. It seems likely that an increasing number of people are trading in their cars for newer, fuel-efficient models (with the high gas prices prompting the switch) and that those with inefficient cars are becoming more conscious of their daily mileage. This is a gradual change, but it is an ongoing one. Gas is very inelastic because it is essentially a necessity for most people, but consumption definitely will change somewhat due to changes in price, especially as buying a more efficient car becomes an option for more people.
Attributing the change in oil prices to improvements in Libya seems like a stretch, though. The article even says that Libya only accounts for 2% of the wold oil output, so I doubt even a significant change in their production would be able to increase or decrease supply much. It does say that Libya is a major supplier of "much-sought-after light sweet crude, the easiest to convert into low-sulfur gasoline and diesel," but low-sulfur gas apparently isn't at all widely used, so while Libya may effect diesel prices, it shouldn't have a big effect on gas prices. Libya would of course be a supply shock because the country's improvement has caused an increase in supply (shift right), which caused a decrease in price.
Perhaps all of my advocacy for using alternate modes of transportation like giant lizards and nether portals has finally hit home.
The article would have us believe that Americans have already changed oil consumption habits in a major way in a matter of a few months. This is total buncombe! I shall smash this article with Beregast and cast it into the fires of Asteroth.
Gasoline is a fairly inelastic good; people still need to drive to get around no matter how expensive the car water gets. There is no way that Americans all of the sudden threw away old habits and went 100% green or something. I predict that the price of oil will again increase and the price at the pump shall rise to its former glory.Whilst there shall be many who whine and spit curses when feeding the four wheeled creature, I shall soar above them to my destination with wings fully outstretched.
I do believe Americans have changed their habits due to the rising price of oil. For example, people cut down on vacations because of the amount of money it costs to drive there with the price it takes to fill up the tank. So yes I do believe that the consumption habits have somewhat changed. However at the end of the day people still NEED oil and gasoline so therefore gasoline is inelastic. Libya only produces 2% of the world's gas supply, so I don't agree that it really is causing the gas prices to lower as they so say or think. Libya is a supply shock though because it is a world supplier of oil.
Americans have not drastically changed their oil consumption habits in the past few months. If anything, my family has been using more gas lately now that soccer has started. For this reason, at least for an economically stable family, gas is relatively inelastic to a point. Recent price changes have not affected travel, but if prices rose to 6 dollars then things might change, but for the current price variations gas is inelastic.
As for the Libya issue, I think it was more of an excuse than a valid reason to raise prices. The country only provides a small amount of the world oil supply, and a stoppage of supply from them would not validly cause a drastic change. It was just used as an excuse for the rising prices.
I believe that Americans are beginning to change their consumption habits, but not as significantly as the article suggests. People are tending to buy cars with better gas mileage, but I don't think that this trend is something that could have a profound effect on the price of gas over the last few months. In my opinion, the shift towards more efficient vehicles will become evident in the long run rather than over the span of a summer. Gasoline is a fairly inelastic good. No matter the price, gasoline is still needed to power many types of transportation. Since gasoline is a necessary good, it will be consumed in large quantities. However, consumers will reduce the amount of unnecessary usage.
In addition to consumer habits, a decrease in Libyan turmoil does have an effect on gas prices. However, the fighting in this area is not over and their production of oil comprises only a very small amount. Since the country is not one of the larger exporters of oil in the world, it's impact on the crude oil prices should not be dramatic. Libyan production would have an effect on the supply of oil in the world because it is an exporter of this good.
Driving habits have probably changed a bit in the past few months, but I doubt that they have changed by very much. Gasoline is one of the most inelastic goods that Americans consume, so drastic changes are unlikely, but there will always be slight changes in consumption with changing prices. Fuel efficient vehicles also play a role, if minor, in the equation. People are buying more hybrid cart, but likely not enough to make any big changes in the market. As for Libya, they only supply 2% of the world's oil output. Although they are a major supplier of light sweet crude, much more people buy regular than people who buy diesel, so it probably doesn't have that big of an effect. The decrease in turmoil caused an increase in supply, which raises prices.
I don't think Americans have up and decided to change their consumption habits all in the course of a small number of months. If that was the case, then no one would care much about gas prices because everyone would be riding their bikes wearing neon spandex and jogging in 5k's, and Scott Neuman would be a writing articles about how clean the air is instead of how low gas prices are. But that is sadly not the case. :( Unfortunately, Americans still drive. Alot. And because of that fact, it is very evident to see that regardless of whether gas prices kerplunked to a single buck or leapt to nine fifty, the quantity demanded generally would remain the same; the demand curve would stay nearly vertical, showing that gasoline is quite obviously a very inelastic good.
Unless all of the Lybians are each sitting on nine tons of crude sweet oil, I don't think that the Lybian oil conglomeration made that much of an impact on rising oil prices by themselves; however, I do think that Lybia did serve as a supply shock to the oil industry, however small.
First, I think consumption, even though not by an overwhelming amount, has changed in the past few months. Every time you go out, you can see people riding their bikes or walking and they are decreasing their amount of consumption. Another major fuel saving technique I've seen more and more is carpooling. Whether its to school, work, soccer games or whatever, a lot more people are sharing rides and that helps out a lot. This shows that gas is a very elastic good. When people see that prices are going up, they all start responding; and though they can't cut out gas usage completely, they try to minimize their consumption habits as much as they possibly can.
As for Libya, they only account for about 2% of the oil output but on the other hand, the sweet crude oil they produce is the most efficient to convert to gasoline. So I believe there will be some shirt in the prices due to the countries problems, but I don't think it will dramatically drive up the prices. And Libya is a supply shock for oil.
The main reason for the shift in oil prices was not the from changing consumption habits but simply from the sellers', oil refineries and gas stations, expectations of future markets. Libya provides light sweet crude to our markets and any changes in its supply would greatly affect the supply of oil in the U.S.. Oil will always be a fairly inelastic good for Americans. The average working-class citizen needs gas just as much as little kids need Justin Beiber. I actually don't even understand how shifting habits would help lower prices since it wouldn't create a dent in the producer's wallet. New consumption habits would decrease demand for oil forcing suppliers to raise prices(which they can b/c their good's inelastic) to make up for revenue losses.
I think that the lower gas prices provide a relief for consumers in the present. The lowered gas prices put more money in the consumers pocket to spend elsewhere to help boost the economy. Although, i don't believe that the lowered gas prices are permanent the past will lead us to believe that the prices will at some point rise. Lowering gas prices also show deflation and in this economy could point us in the direction of another recession. Hopefully the lowered gas prices will increase the confidence of consumers encouraging them to spend money.
Sorry about the lateness. It isn't a very good excuse, but I'm sick. I hope you'll accept this for some points:
Well IF we were actually changing our ways and using less gas, oil/gasoline would be an elastic good. But I'm not so sure we are changing much at all. I certainly see less SUV's driving around than I used to. But I don't see any new people biking to work or buying new cars (in a matter of months). Sure people ca change, but they most likely won't in such a short time. So I conclude that oil/gasoline is a relatively inelastic good.
Verleger was right on the money (ha) when he said "Prices are coming back down in part because Libyan production is back online." TWO PERCENT holds no major responsibility for changing U.S. oil prices, ESPECIALLY because the two percent is high quality oil that we probably aren't going to buy. Forgive my outbursts, but I don't buy into this theory that Libya's slightly better situation played a significant role in decreasing the price of oil. Think Weber's law in a new context: the percentage change is just not great enough for us to see a difference. John Heimlich agrees with me..."It's like the show The Biggest Loser. Mary lost 10 pounds, yeah, well she's still 400."
But whether or not Libya ever made a serious dent, it was our forboding that changed the prices, not their inability to provide. Thus, a demand shock is had. Worrying about Gadhafi's affect on oil, we (the distributors) took matter into our own hands and raised the prices...just in case.
But seriously, I give all my props to the "crack spread" idea. I get that this is by no means currently lessing prices. But I think of all the mentioned theories for why the price is what it is, this is the most logical.
The End.
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