Introduction Edgar is an investor who sees the high gas prices as a chance to make money from American consumers and their constant demand of gasoline, and soon a large demand from increasing car sales in India and China. Over the past several years the increase in crude oil price resulted in a drastic increase in gasoline prices setting record highs every summer. Consumers had to change their way of living, and sax. N. Investors saw this as an opportunity to get in on making a profit, and this is what Edgar plans to do with the two gas stations he wants to purchase.
This investment can easily become a nightmare if the gas stations do not produce enough revenue to cover expenses such as paying back the loans needed for the initial purchase, or increasing maintenance costs. But recently crude oil prices have plummeted and this new development can be a prelude to decreasing profits from gas stations.
The analysis provided below will discuss reasons for purchasing the gas station as well as future indications on what to expect about gasoline in the future.
Demand Determinants The price of crude oil which is refined into gasoline has a direct effect on demand et by consumers. While the price does fluctuate as for any commodity, crude oil and gasoline is special in that it follows an inelastic demand curve. This is to say as the price increases the quantity demanded will be decreased, but not by much since gasoline is necessary for many aspects of a daily routine.
Consumers therefore sacrifice other spending habits like eating out at a restaurant or traveling to a vacation spot by car or shopping all at one location rather than multiple locations. This can have a huge impact on tourist destinations such as national parks or beach owns during summer vacations, with more people choosing closer and more local destinations, or simply staying at home in a new term called “Stagnation” (Stagnation Definition, 2015).
Consumers are becoming more sensitive to gasoline prices and are adjusting their lifestyles accordingly to fit within their budget and may respond favorably if gasoline prices drop below the $4 per gallon mark. With the consumer sensitivity toward gasoline prices, a few notable changes are occurring on the road. In a meta-analysis done by Espy (1996), it was found that as gasoline prices rose by 10%, the demand lowered by 2. %, which leads to a decrease in the volume of traffic, decrease in fuel consumption, and increase in fuel efficiency, all in the name of saving money at the gasoline station.
While the demand may dip in the beginning as the price increases, the demand will slowly rise back up as consumers become adjusted to the change and see the need for gasoline as necessary in their daily lives. As demonstrated by the graph below taken from the Economic and Statistics Administration website, the gasoline price increase also affects the expenditures of a person and the household. Microeconomic analysis gas stations By windcheaters
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