Gas Price Elasticity

1349 WordsApr 6, 20016 Pages
Gas Price Elasticity The Energy Information Administration of the Department of Energy began tracking weekly gasoline prices in 1990 by means of a survey of 800 service stations around the country. The average retail price for unleaded gasoline posted its fourth record high during the week of June 12, 2000, increasing 5 cents a gallon to an average of $1.681. The price at the pump is higher than the same period last year by 56 cents and has risen 16.2 cents over the past month (Anonymous, 2000). How far will it rise? What will consumers do about the dramatic increases that are occurring with the arrival of each shipment? Price elasticity of demand would indicate that demand will fall as prices continue to rise, which in turn should…show more content…
The end result is that there is little price competition at retail (Brodrick, 2000a). Price increases are normal in the summer months as families pile into cars for the family vacation. This year, there was additional price pressures as the industry recovered from the hard winter in the Northeast and Asia continues to recover from it currency crisis-induced recession. As people in affected regions have more discretionary income, they spend greater portions of it on gasoline for their own cars (Brodrick, 2000). William Berman is editor of Pump Price Report in Fairfax, Va., and retired energy director for the AAA, and says that consumers get "nervous" as gas prices rise. Conventional wisdom is that families indulge in "fewer weekend getaways and long driving vacations with the family" (Brodrick, 2000; p. 000215d), but there is evidence that such is not the case. Rather, Americans generally will not change travel plans unless gas is over $1.50 a gallon, which of course it is now (Brodrick, 2000). Even then, relatively few cancel travel plans. Unless there is a gas shortage so that availability is uncertain, Americans generally continue with their plans regardless of price. Gasoline generally is seen as a necessity. Going to a family reunion once a year may be an option, but going to work each day is not. There is also no option for landscaping businesses and farmers to defer purchase in response to price. Higher prices encourage conservation, but

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