So you are saying to yourself right now, "Enough with the gas prices already". The topic is a hot issue right now and will remain so for sometime. So sorry, it is another article about gas prices. But this article offers a little bit of hope, based on basic economics. Now whether it will play out the way the author predicts is yet to be seen. But if you drive at all, how can you not read an article titled "Why Oil Prices will Tank". I found it particularly interesting because it cost me $52.00 to fill my Mazda6 sedan this evening. It just seems wrong to pay over $50.00 to fill up a sedan. I may date myself some as I am not a traditional student, but I can remember back in the mid to late 90's when I was in college the first time, that gas was $0.99 a gallon. I could fill up my little Cavalier for $11.00! Does anyone remember the days when you were excited to be given $5.00 in gas money from your parents and you could run around all weekend on that. That will only get you about 1.25 gallons of gas now.
Wednesday, June 25, 2008
The author makes the point that if you consider gas prices in terms of basic economics, the issue is not whether gas prices will decline, but when. Worldwide demand has surged and supply has decreased due to government control and mismanagement. And we know from Chapter 3 that a simultaneous shift in both the supply and demand curves, in this case, demand increasing and supply decreasing, will lead to an increase in price. But the author contends that the price cannot remain elevated indefinitely. The current market is "classically unstable" with the increased demand and decreased production throwing it out of balance. With record-breaking profits in the oil industry, people realize there is money to be made and new supplies will be developed. Demand should start to decline as well, if slowly. At least in my life, demand for gas is relatively inelastic. I do what I can, but I have to drive to work everyday and that quantity of my driving does not change with the price level. But the oil market has under-anticipated the conservation brought about by high prices. Car sales are decreasing, Americans are cutting down driving, and airlines are scaling back flights. So these factors together, in theory, should bring down the market price of oil. Though the point of the article may simplify the complicated oil market, it gives cause for hope that we may see lower prices at the pump...eventually.