The Gasoline Industry Essay

1931 words - 8 pages

The chosen industry for this paper is the gasoline industry. This paper will discuss the price of gas, and its affect on the U.S. In the gasoline industry, it is said that the price elasticity of demand is inelastic. This is said about the gasoline industry because with the high price of gasoline, there is still a high demand for gasoline, and there are not a large number of substitutes, which are readily available to use instead of gasoline. Mankiw (2004) stated, "The price elasticity of demand measures how much the quantity demanded responds to a change in price."The substitutes that can be used in the place of gasoline are limited, and have not been developed well enough to mass-produce. Oil and gasoline are the main source of energy in the U.S. The substitutes that can currently be used in the place of gasoline are hybrid cars, solar energy, public transportation, and ethanol. The substitute that is the best as of the current time is the hybrid cars, which run on electricity. These cars reduce the required amount of gasoline needed to drive. The majority of the people in the U.S. think that gasoline is a necessity, which is used everyday. Fuel manufactured from oil is the main resource for driving motor vehicles, and heating homes, which are two of the basic needs of each citizen in the U.S.The price of elasticity in this industry is elastic since gasoline and crude oil in the U.S. are two major resources required for energy. There is a set of interconnected international and domestic factors, which have caused the price of gas to increase steadily over the last few years, along with the unquenchable demand on a global level, which may keep the prices there for the short term (Tanneeru, 2006). The war in Iraq has been a major cause of the high price of the gasoline and oil prices that are currently being seen. The markets did anticipate a disruption of the supply of oil, and this was proved in a speech given by Bush (Bloomberg News, 2003).It is thought that the concept known as supply and demand would be common knowledge. Even if it is common knowledge, the elasticity of price is still an interesting concept to study. When the elasticity of price is looked at in relation to gas prices and the gasoline industry, individuals are able to form a relation to this industry on a somewhat level that is personal, because this industry has some type of direct affect on consumers in the United States. Consumers are affected directly through the transactions, which take place between the buyers and the sellers. The gasoline prices have risen for the consumers because there is a global growing need, and the Iraq war. These two variables create a negative externality.Gasoline is known as a resource, which is excludable. With the diminishing supply of oil and gasoline worldwide, there is a growing need for the resource. The regions that have a supply of oil that is rich are more controlled now than they have ever been in the past. The governments in these...

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