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Article Analysis of Gasoline Consumption Essay

Gasoline is one of the most demanded resources that Americans count on to get us from point A to point B in our vehicles, and it is also used to help us heat our homes. Ethanol with gasoline can be combined for a blended gasoline, which is better for some vehicles. The following information is from two articles appropriate for this topic. In the first article, “Trends in U.S. Gasoline and Ethanol Use, and Petroleum Production and Imports” by Dr. Robert Wisner, a Biofuels Economist with the Agricultural Marketing Resource Center, states that “Several decades ago, the U.S. was a net exporter of petroleum products. However, that picture has changed dramatically in recent years as gasoline consumption trended upward and environmental constraints on new wells plus declining production from existing wells failed to keep pace with rising domestic demand. U.S. energy policies in the early 1990s were altered to encourage increased production of biofuels, in part because of a desire to reduce the nation’s dependence on imported oil” (Wisner, 2011). The demand for gasoline and oil is unbelievable.

Some observers suggest that oil company collusion, anticompetitive mergers, or other anticompetitive conduct (not market forces) may be the primary cause of higher gasoline prices. If the market price of gasoline is higher than the equilibrium price, a negative slope in the demand and curve will result. The negative slope of the demand curve for buyers will mean that the quantity demanded will be less than the equilibrium quantity. A positive slope of the supply curve for sellers will mean that the quantity supplied will be greater than the equilibrium quantity; hence the quantity supplied will be greater than the quantity demanded. If the market price of gasoline is below the equilibrium price will result in a negative slope and if that happens, the demand curve ensures that there will be a greater quantity demanded than at the equilibrium price. A positive slope of the supply curve ensures that there will be a smaller quantity supplied than at the equilibrium price.

Hence the quantity demanded will exceed the quantity supplied. This excess demand will force consumers to spend more time looking for sellers who have the goods available, and to spend more time waiting in line if they do find a seller with the good. These search costs and queuing costs will lead some consumers to offer more for the good, and hence the price will tend to rise. Dr. Wisner also states in the article that “future trends in the nation’s use of these fuels will depend on a number of factors including the health of the economy and employment levels, automotive technology, the rate at which consumers accept hybrid automobiles, and the possibility of a sharp increase in government-mandated fleet average fuel mileage requirements in the years ahead that has recently been advocated by administration officials. Blending of ethanol with gasoline is mandated to increase sharply in the 2012-2022 period” (Wisner, 2011).

Price elasticity of demand is elastic when the percent change in demands is greater than the percent change in price. Inelastic is the opposite. So, I would have to say that gasoline is inelastic because the demand for gas is high and even though prices are rising, people are still buying gas, just not as much as they want to purchase. If there are substitutes (such as electricity or liquid fuel) for a gasoline usually will be elastic. If there are no substitutes it will be inelastic because it is a necessity.

I know that no one is happy about gas prices rising, but everyone sure does get excited when the prices drop. When the price of gas increases, consumers will not purchase as much of the product as they would when prices decrease. In the second article, “Explaining the variation in elasticity estimates of gasoline demand in the United States: A meta-analysis” by Molly Espey, published in Energy Journal; states that Espey examined 101 different studies and found that in the short-run (defined as one year or less), the average price-elasticity of demand for gasoline is -0.26.

That is, a 10 percent hike in the price of gasoline lowers quantity demanded by 2.6 percent. In the long-run (defined as longer than one year), the price elasticity of demand is -0.58; a 10 percent hike in gasoline causes quantity demanded to decline by 5.8 percent in the long run. In conclusion, if the price of gasoline continues to rise, there will be a decrease in the demand of the product. If the price decreases, there will be an increase in the demand of the product. When prices are high, demand is low and when prices are low, demand is high. The prices of gasoline will fluctuate because demand is always high.

References:
http://www.agmrc.org/renewable_energy/energy/trends-in-u-s-gasoline-and-ethano
l-use-and-petroleum-production-and-imports

http://www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf


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