Oil Industry

1938 Words Jan 21st, 2006 8 Pages
Group 16:
Econ Project #1
Due: 16 October 2003

Introduction by Jamie Ifkovits: Oil is certainly the world 's largest cash commodity. One of the main products produced from crude oil is gasoline. Gas plays a significant role in the life of people in countries throughout the world. Gas accounts for approximately 17% of the energy consumed in the United States and is primarily used for powering automobiles ("A Primer on Gasolne Prices" 5 Oct 2003). The prices paid by customers at the pumps reflects the price of production and delivery, the retail costs, and taxes ("A Primer on Gasoline Prices" 5 Oct 2003). By 1932 all of the states had excised taxes on gasoline and the federal government introduced its first tax on gasoline.
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This price fall is stated in the law of supply. There maybe a surplus, which would cause the price to fall more. The quantity will increase from Q1to Q2 because there is more gasoline in the area.
Question 2 by Jeremy Simmons
This increase in tax will initially be paid for by the suppliers. The prices will rise at about the same rate since all suppliers will be paying the same tax. This will cause the price in all gasoline stations to increase there prices by at least 50¢. Since the price has increased the quantity demanded will decrease. This is shown in the law of demand. Since the quantity demanded has decreased this means that there will be less gasoline sold because people will not want to pay the high prices for gasoline. The majority of the tax increase will be paid for by both the consumer and the suppliers. This is because of elasticity, but more so deadweight loss, which is "a reduction in the number of transactions that take place as a result of a tax increase (Miller 2001)".

Question 3 by Doug Miller
Prices for gasoline tend to be greater along the Pennsylvania Turnpike than they are at the turnpike exits. This happens because rest stop gas stations receive a greater volume of traffic than stations located at the exits. This increased number of vehicles visiting the gas station forces the demand curve to shift outward from its original position. The supply curve however, stays constant. There are no production factors that affect the supply

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