Gas Price Elasticity Essay examples

Currently Saudi Arabia is one of the leading producers of oil in the world. However, it is losing its foothold on the market. Many countries, like North America, are increasing their oil production and are looking for ways to become less dependent on foreign oil. The increased competition has caused oil prices to decrease. By producing their own oil, countries not only will increase their revenues, but will also reduce their need to rely on foreign oil. By reducing their need foreign an oil a country does not have to worry that their oil supply will be cut off if they go to war.

Despite the real life anecdote described above, a lot of people don't understand why and how gas prices rise and fall. There's an increase in attention to gas prices when they're higher or lower than usual because that directly concerns them as a consumer. Even when gas prices are higher, consumers keep paying because there's not really an alternative out there besides buying a new environmentally friendly car. However, there's currently a much deeper problem in the United States related to gas prices. Today, in particular, gas prices are a lot less than they have been but most Americans brush it off and wonder something along the lines of ""Who is that bad for?"". I mean, fuels costs eat up a large share of earnings in the

Just because the government say it's in the interest of the people doesn't mean they really are. Most people think that if the government mandates gasoline then the price of gas must decrease; that's not always the case. In fact there are chances where the price of gas can increase. There are many debates arguing about how much power the government has over us. Giving them the opportunity to mandate gasoline is giving them even more power. If the government see that they are losing fuel, then they may increase the price above the equilibrium to save fuel.

There has been some talk about an “oil-extraction tax.” With this tax in place, it would force companies to fork out more of the tax instead of the consumer. If higher taxes are put in place for the producer ultimately they are not the ones paying the higher price the consumer is. Either way producers will receive revenue and in order to do that they will just raise their prices. The demand for fuel is based on necessity forcing consumers to pay outrageous prices because they need it. In addition to the tax, oil companies would have to disclose more information about their supplies and prices. Since the companies have market power, some believe with the tax in place it would reduce the price of the good.

The current sources of fuel for gasoline and diesel vehicles are limited to gasoline, diesel, and biodiesel fuel. As of October 18, 2010, the average price for regular grade gasoline was $2.834 per gallon while the average price for diesel was $3.07 per gallon. Only the biodiesel fuel labeled B2, B5, and B20 can be used in a standard diesel vehicle without engine modifications. The average for B20 fuel mirrors the price of standard diesel fuel at $3.07 per gallon.

To understand the increase in gas prices, one must first identify the distribution of dollars paid per gallon at the pump. According to the U.S. Energy Information Administration (eia) in 2010, the annual average paid at the pump consisted of 68% crude oil, 7% refining, 10% distribution and marketing, and 15% taxes

Each time a person residing in the United States pulls up to a gas station to fill their tank it costs more money. This is particularly true of the past four years. Many focus the blame on the American Government but there are a multitude of factors causing gasoline prices to be so astronomically high. Middle eastern war, environmental precautions and government all seem to have a hand in the price we pay at the pump.

The supply and demand are the main driving forces within this market, it can cause a change instantaneously overnight, and these cost issues are immediate to the consumer. There could be a fire in one of the local refineries causing product shut down, this can create a panic at the pump as well. There are many reasons why this product is so volatile, it cost too much money to refine and thereby is restricted in the method of refining. Supply means that there is a large supply available for product usage, pricing goes down, too much product, if the Demand is exact opposite occurs and there is short supply and the pricing is extremely quick to be changed at the pump. The markets can be also affected; they can be changed no matter how far the original production occurs, economics are disturbed, countries global markets respond to higher cost factors to operate business development causing inflation to jump to higher records slowing down global progress.

The chart above shows a graphic comparison regarding the different gas prices at the two different Marathon locations. This graph shows a visual trend of each of the various gasoline prices. According to the data recorded, the gasoline prices at the Angola Marathon throughout the week were, on average, about fourteen cents more per gallon than at the Muncie Marathon. The prices of gasoline at the Muncie Marathon declined, on average, about four cents per gallon per day throughout the week. While the gas prices at the Muncie Marathon continuously decreased each day, the gas prices at the Angola Marathon varied each day. Within the first three days, the gas prices at the Angola Marathon decreased about two and a half cents each day, on average. On the last day data was recorded, the trend at the Angola Marathon was reversed, and the price of gas increased by one cent.

In addition, distribution expenses also increased from $187 million in 2010 to $245 million in 2012. The additional expense is a direct result of higher gas prices and the expansion of their E-commerce site. According to the U.S Energy Information administration, “the average price per gallon of gas in the United States in 2010 was $2.70”. “The average price per gallon of gas in the United States in 2012 was $3.54.” (U.S. Energy Informantion Administration, 2012)Oil prices continued to increase as the demand for crude oil intensifies.

The demand of gasoline has increased steadily over the last twenty years. In 1981 the U.S. averaged 6.5 million barrels of gasoline consumption per day. By comparison, in 2004 the U.S. averaged 9.2 million barrels of gasoline consumption per day. For most of this time period, gas prices stayed relatively the same. This is because the U.S. refineries increased their production to meet the demand and maintain the equilibrium price. Also during this same time period worldwide demand for crude oil increased 27%. Crude oil producers also increased their production to meet the demand keeping prices the same.

From the recent case data, ExxonMobil has not acted irresponsibility in pricing its gasoline products. Outside of the grocery industry, I have not heard of any business segments surviving on less than a 5% profit margin. In reading that ExxonMobil reported only a net profit of 8.5%3, it is difficult to state that the firm over priced its products to reap abnormal profits. Although Mr. Lee Raymond’s $400 million retirement seems grossly out of proportion in utilitarian terms, adding these funds back into the firm’s bottom line would not change the profit results. With profit margins of less than 10%, it is unlikely that ExxonMobil would be able to keep the price of gasoline fixed if sweet crude oil were to increase from $80 per barrel to $88. This 10% increase in raw material cost would have to be passed through to the customer in the form of higher prices for the firm to survive.

All the gases in the united states should be cost the same,however because of the brand (exclude advertising,location, shipping,business’s profit, and additives that gas station add) the gases cost differently.

1 To illustrate, jet fuel is tied to the price of oil and, over the past year, oil prices surged from about $70 to $135 per barrel. Consequently, the price of jet fuel increased markedly, from an average of $1.77 per gallon to $4.20 by the mid-summer of 2008.

The US consumed 142 billion gallons of gasoline in 2007 and the tax applied on it is 18. 4 cents on one gallon. All around the US, there are around 162,000 retail gasoline outlets. With the price of crude oil hovering around $100 a barrel, it is no wonder that concern is growing about the gas prices being so high. After all, modern economies are kept moving by this lifeblood. For instance, in the United States alone personal vehicles consume more than 140 billion gallons of diesel fuel and gasoline per year.However, there are several factors that contribute to the gas prices being so high. Given below are a few of them. Increasing Demand for Oil One of the main catalysts for the incessant rise in gas prices has been one of the most