3/22/2005

Surging Gasoline Prices Not Slowing Demand

This article that I found on Yahoo Finance was very interesting. One reason I found it to be interesting was because as the price per gallon of gas has gone up, demand has not gone down. Doesn’t this go against the rules of supply and demand that we have learned? Over the past month gas prices have gone up more than 10% and motorists are still buying it. The Energy Department released some figures that the demand for gasoline has raised about 2% from over a year ago. Why do you think demand keeps going up?

Another interesting point was that diesel fuel has gone up roughly 36% from a year ago, but the trucking industry is still thriving. Why? Some say it is because of fuel surcharges and a strong demand from the retail and manufacturing sectors. This is very good for the trucking industry as long as they can keep covering their fuel costs.

One last bit of information that I thought was interesting was the fact that gas prices would have to climb another $1 per gallon to reach all time highs. For our sake, let’s hope this doesn’t happen!

9 comments:

Harry said...

It is very interesting that supply and demand is not slowing down with the gas prices. Gas prices are becoming ridiculous, but it is something that we need and cannot live without. So it is almost getting to the point that no matter how high it gets people will still buy it. They will just have to start budgeting it in. Lets hope that something will change it so it will go back down.

stockton said...

I agree with what Harry stated, in that no matter what the price of gas ends up being, we still need it and will still buy it. We may carpool, ride the bus, or even walk a little more, but overall I don't think much will change. We need gas for so many things-necessities and enjoyment alike. So no, demand isn't going to change much-the supply is still there and we still need it.

rico said...

Gas prices aren't just going up because of consumption in the United States. The global economy as a whole is consuming larger quantities of gas. Evolving countries such as India and China are being introduced to low cost automobiles and starting to rely on them instead of bicycles or walking. You now have to look at this issue from a global perspective, not just a local problem.

Diane said...

I would think that if consumers complain about higher gas prices they would find ways to decrease their consumption. Why don't people turn to alternative transportation methods? I think Americans rely too heavily on the convenience of personal automobiles. In other countries most people use public transportation or (gasp) walk. Of course public transportation may not take a person where they need to go and it may be too far to walk.

I think culturally Americans aren't used to using public transportation. Nobody wants to ride the bus. It's not cool. Everyone needs their own car. I admit I could have used the Suntram in St. George to go shopping. But I chose to pay for the gas and drive my car.

June said...

It seems that the demand for gas is inelastic. I disagree that we will buy gas nomatter how expensive it gets. At some point the cost will outweigh the benefit we get from consuming gasoline. I don't know what that price is, but I am sure if gas got to $50 a gallon we would find some other way to get where we needed to go, or else we would just stay home.

Dr. Tufte said...

This is a good question with an easy answer. Prices can rise either from supply shifting to the left or demand shifting to the right (or a combination of those).

There is no problem in demand shifting to the right, prices rising in response, and buyers not doing anything about it. All that this reflects is that the shift in demand caused the price rise.

The alternative argument - that somehow high prices should cause buyers to economize - is implicitly saying that it is supply that has shifted to the left. In this case the economization is represented by the movement up the demand curve.

The second is the argument that Diane is making. The point of all this though, is if there are two arguments with different implications, and one of them is not supported by the facts, then the other one is the correct one. In this case, we are not seeing economization on gas (which would happen if high prices were caused by a supply shift), so we can conclude that the high prices are caused by a demand shift. People are not economizing on gas because it is gas they want. If there is any economization, it is on other things (like Diane economizing on her use of public transportation).

Concerned Jake said...

People will keep paying the outrageous prices to get where they need to go. More consumers should try alternative modes of transportation, or simply cut down on foolish driving, "pounding laps" around town. Maybe try to get all your erands done in one trip, to avoid haveing to go out again.
Oil companies have too much money and too much power, which is why they buy pantents for new technologies, making us(consumer), pay more and more money.
When will the government step in? Never, our goverment officials are making six figures and could care less if if costs them $40-$80 a week on gas. This is pocket change to them. However, to the hard working american, this is not pocket change. Something needs too be done.

Korey Elliston said...

Sorry for omitting to sign - I posted the above.

Dr. Tufte said...

Thanks for reading.

I wonder how Concerned Jake feels about this now that gas prices are back down again.

Are oil companies being less greedy than before? Because - unless the answer is yes - it is hard to claim they are more greedy when prices rose.