In this article of the "price elasticity of gasoline, again" it talkes about how oil companies are trying to produce the amount of oil with the amount of consumption to limit the resource of oil ,therefore by changing the price can both change consumption and demand. It also suggests to the fact that the oil companies are purposily tryin to increase oil prices to not let gas become scarce, so that the demand goes down. As if the the oil company has already consumed large amount of money enought, The taxes also determine the price of gases as well. The decrease in tax won't have any effect to gas, but if to say that if tax raises , the gas prices increase.
Connection
In this chapter we talked about how elasticity can be determined by how we as consumers change prices by demanding more or less of a product or price changes can impact a change on how we as consumers demand of a product. This being said, the Demand and supply demand for a product that we now know today is chiefly determined by its price.The price of a chocolate bar works the same way.As prices of the chocolate stay the same we intend to buy more of it, therefore the demand is strong,but when prices goes up we reject the fact of paying more and so the demand goes low. Price elasticity gives us a better picture of this relationship between demand and price. It describes how responsive demand is to a change in price. Relating to gasoline , lets say a gallon of gas costs $3.00. Now let's say that tomorrow, when we go to fill up our tank, gas prices have increased 10 percent - to $3.30. If the price stays this high we might re-think the weekend trip. but in general we will probably drive approximately the same number of miles over the coming week as we did last week. For the sake of the example let's assume that our gas consumption declined by only 5 percent. So a 10 percent rise in the price of gas led to a 5 percent decrease in our demand, therfore we say gas as inelastic since our demand is not very responsive to changes in price.
Reflection
I personally think that the oil companies are doing the right thing, Their main concern is to lower the consumption and the demand of oil because of not wanting this resource of becoming scarce or what not, But they are also trying to encourage other alternatives , such as hybrids or other transportation that not involves much gas which favours the enviornment. As gas is considered as inelastic, it will continue to have a higher demand, since it is a necessity to our daily lives.
Source:http://meganmcardle.theatlantic.com/archives/2008/05/price_elasticity_of_gasoline_a.php
1 comment:
the fact that the oil companies are reducing the amount of oil produced was probably forced on by the government to keep the oil prices from falling lower than they already are. Ceilling the oil prices will help the oil companies from making loses and will avoid the companies from making oil more scace inorder to increase the prices. the government has then saved both the consumers and the suppliers the amount of money they would have spent on oil prices going down or going up.
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