Gasoline Prices Essay

Submitted By bjtipton83
Words: 1114
Pages: 5
Open Document
Gasoline Prices and Crude Oil
The Effect of Domestic Oil Domestically

Brandon Tipton

Section I: Summary of Article: North Dakota's Bakken Oil Finally Hits the East Coast
This is a short article written by Matthew Phillips of Bloomburg Business Week. It centers around the fact that oil from North Dakota is finally due to hit the East Coast in the near future. He highlights the economic benefits as well as giving his opinion on whether or not this will lower gasoline prices on the east coast. He concludes that the oil alone is not enough to cause a drastic price drop, but might be enough to prevent a price spike. The opinion is supported by economic principles.
Section II: The elasticity of oil.
Using the chart provided for us in our textbook we see that gasoline is inelastic, at least in the short run. For gasoline there are very few substitutes, it consumes a relatively small fraction of consumer budget (though that fraction is growing with increasing prices), and the product is a necessity (O'Sullivan, Sheffrin, and Perez).
Just because price goes up in gasoline doesn’t mean that people will stop buying it. For now, there are very few substitutes. People still have to work, get their kids to school and other activities, go to the store, and a variety of all other things. All of these things require gasoline in order to achieve. Therefore, even if Bakken oil hits the east coast for less than foreign oil, there is no incentive for the oil companies to reduce the price of gasoline. The positive not is that there is no incentive to raise the price of gasoline either. The only way that oil prices abroad go down is if there is a big enough supply of oil domestically that makes the price of oil radically cheaper and forces foreign oil to decrease their prices as a result.
In the long run, gas becomes more elastic as alternatives develop. Electric and hybrid cars are an example of alternatives. However, as of now they are fairly expensive alternatives; the price increase you pay for these alternatives offsets the price of gas you pay with regular cars. However, even in the long run gasoline maintains a certain amount of inelasticity. “Estimates of long-run consumer demand elasticity suggest that a 10 percent price increase will result in only a 6 percent decrease in consumption.” (Silvia, Meyer, and et al). Though Bakken oil hitting the east coast is great for the economy and a good start at using domestic oil, due to its elasticity it is not enough to greatly affect prices of gasoline.

Section III: The price of oil
The world price of crude oil is the most important factor in the price of gasoline (Silvia, Meyer, and et al) and the price of crude oil is set in the global market (Ydstie). In translation that means that the price of oil out of North Dakota will not be that much less than foreign oil, especially after transportation cost. The article suggests that after all transportation and fees that the price will be roughly $7 dollars less a barrel. While seven dollars is a decent cut, especially over millions of barrels, it is likely not a big enough decrease to justify a dramatic decrease in the price of gasoline. As you can see from the chart below (Silvia, Meyer, and et al) the price of domestic oil mirrors

closely that of the price set on the world stage. So, just by sending a portion of oil out of North Dakota to the east coast will not necessarily decrease the price at the pump. In order to do that there has to be enough to effect to world’s supply of oil, something the United States can’t do or is not willing to do at this time.
Section III: Supply and Demand

P1
P2
Q1
Q2
Normal Supply Curve
P1
P2
Q1
Q2
Normal Supply Curve
In a normal supply and demand
Show More

Related Documents: Gasoline Prices Essay

Essay on Gasoline Prices

The price of gasoline held steady into early February, but an increase is almost inevitable this time of year. Pump prices have gone up an average 31 cents per gallon in February over the past three years. And although this year’s rise might not reach the heights of years past, there are reasons for drivers in some regions – like the Northeast – to worry about a painful spike. “We’re going to get increases and they are going to be noticeable,” says Tom Kloza, chief oil analyst at Gasbuddy.com…

Words 298 - Pages 2

Is Gasoline Price Inelastic?

better of taxing gasoline instead of taxing Nike tennis shoe. Gasoline is relatively price inelastic because consumers have fewer substitutes, particularly in the short run. When the demand of a product is inelastic, an increase in price would not affect the demand of the product. Inarguably, the producers often tend to transfer the tax burden to the consumers, meaning that the decision by the government to increase taxes on gasoline would result in increased prices of gasoline in the market. However…

Words 186 - Pages 1

Fluctuation In The Price Of Gasoline In The Fresno, CA Area

EVERYONE’S GASOLINE PROBLEM Why is there such fluctuation in the price of gasoline in the Fresno, CA area? ANALYSIS I live in a “bedroom community” where a large portion of the inhabitants commute 70-80 miles round trip to work every day. This leads to a steady demand for gasoline in the area and along the commuting route. The gas stations along the route are well aware of this fact, so our prices tend to not spike very quickly, nor drop quickly because any sudden spikes would easily cause drovers…

Words 892 - Pages 4

How To Increase Gasoline Prices In The United States

American Dream is not accessible to every American is the price of everyday necessities has increased. Major companies that produce everyday necessities such as gasoline, eggs, even clothes, are believed to be raising the costs of their products. The companies are in fact raising the costs according to the statistics found in Malik Crawford and Stephen B. Reed’s article about the increase in gasoline prices, “For example, the EIA measure shows gas prices rising from $1.429 in December 2002 to $3.381 in December…

Words 680 - Pages 3

Is Gasoline An Inelastic Product?

The product I chose was gasoline because of the demand for it; gasoline is an inelastic product because we have to use it in our everyday existences. The demand for gasoline from oil companies shows how consumers purchase gasoline at different prices at different times. The consumer demand for gasoline can change by the laws of demand, which states, “As price falls, quantity demanded increases.”() Our economy has limited resources, and we have to decide whether we're willing to pay for this product…

Words 283 - Pages 2

Research Paper

The Effects of Hawaii’s Gasoline Price Cap Law ECON 6000 Hawai’i Pacific University Hawaii’s Price Caps on Gasoline In an attempt to provide fiscal relief to motorists who were paying increasingly exorbitant prices at the gas pumps, the State of Hawaii sued seven oil companies and several subsidiaries of conspiring to fix wholesale gas prices in the state in October 1998 (Perez, 1999). Each company that was sued eventually settled with the state. However, the settlements…

Words 1858 - Pages 8

Inelasticity Of Gasoline Research Paper

Gasoline is an inelastic product because as the price of gasoline increases, the demand does not decrease significantly as there are very few good substitutes for gasoline. An important aspect of oil demand is the difficulty of substituting other sources of energy for some petroleum products—particularly gasoline. In the immediate term at least, gasoline has virtually no cost-effective substitutes, and, therefore, increases in its price cause only small decreases in consumption. (The Government Accountability…

Words 1846 - Pages 8

Gasoline: Petroleum and Gasoline Essay

GASOLINE: How Did We Become So Dependent? Kenneth Miranda 14 May 7, 2013 ABSTRACT Gasoline has become a major element in our everyday lives. We are dependent on it for travel. Even with the tremendous fluctuating prices of gasoline, we continue to purchase without waiver. This paper first looks into what gasoline really is and how we have become dependent upon it. Key Terms: gas, gasoline, petrol, crude oil, automobile, petroleum, refinery, gas prices TABLE OF CONTENTS…

Words 2695 - Pages 11

Exxonmobil: Social Responsibility in a Commodity Market Essay

1. Consider and discuss the impact of the rising price of gasoline on as many other products and services as possible. Drivers realize that the price of gas is tied to the market value of crude oil, and has a direct impact to their daily commutes, errands, and vacations. However the reality is that the price of fuel has implications much grater than most consumers realize. Fuel prices affect nearly everything we purchase. For example, the price of farm commodities and food increase because farmers…

Words 1026 - Pages 5

Essay about Project Part 1 Gasoline

Gasoline prices fluctuate due to many circumstances” it may seem like common sense, but where you live helps determine how much you will pay for gasoline. The closer your home is to the Gulf Coast, the lower your gas prices will be. That is because the transportation of gas to stations throughout the U.S. is expensive, and that cost is passed on to consumers like you in the form of higher prices. “(Rosetta, 2012) the article refers to how each location can have an effect in how the price will…

Words 873 - Pages 4