The industry chosen for my research is the Gas industry. I chose to research the affect of the war on gas prices in the US. My sources for this paper are Just before war: Price of Oil Hits 26-Month High after Bush's Comments on Iraq and Global thirst, fears keep gas prices high.
In your chosen industry, is price elasticity of demand considered elastic or inelastic? In my chosen industry, the Gas industry, price elasticity of demand is considered inelastic, although prices are high fuel is still in high demand due to few readably available substitutes. “The price elasticity of demand measures how much the quantity demanded responds to a change in price.”(Mankiw, 2004)
Are there substitutes available? There are substitutes available but there are not many or well developed. Gas and crude oil is still the major source for energy. The available substitutes are solar energy, ethanol, public transportation, moving closer to work, buying more fuel efficient cars, and hybrid vehicles which run on electricity thereby reducing the need for large amounts of gas.
Is the good a luxury or a necessity? Most would consider gas as being a necessity. Fuel for heating is a basic need for everyone and driving is considered a basic need for people of age.
What is the price elasticity of supply for your chosen industry? The price elasticity of supply for the Gas industry is still elastic as crude oil and gas are still the number one source for energy in the US and globally. According to the CNN article Global thirst, fears keep gas prices high “An Interconnected set of domestic and international factors have pushed gas prices steadily higher over the past few years, and an almost unquenchable global demand for energy may keep them there for at least the short term, industry observers say. “ (Tanneeru, 2006) As well as an article Just before war: Prices of Oil Hits 26-Month High after Bush’s Comments on Iraq quotes: “The Iraq war was part of the cause of high oil and gasoline prices. The markets anticipated a disruption of oil supplies, as proved by the impact of Bush’s speech.” (Bloomberg News, 2003)
The concept of supply and demand is not new to me but I find the specifics of price elasticity quite interesting. Especially as it pertains to the Oil/Gas industry and gas prices, I can relate to this industry on a personal level as it affects me and members of my family directly and indirectly it is nice to have some more insight into the daily issues that we face in respect to gas prices.
References
(2003). Just before war: Price of Oil Hits 26-Month High After Bush's Comments on
Iraq. Retrieved September 13, 2007, from http://zfacts.com/p/377.html.
Just before war: Price of Oil Hits 26-Month High After Bush's Comments on Iraq. discusses the impact of President Bush’s comments on Iraq just before the war began and the ‘US’s low inventories of heating oil and gasoline’ on the price of gas. The article also sites that a Man financial energy broker about the rates of supply and demand going into the war. Statistics on crude oil costs are listed for the US and England citing demonstrating how much of an impact the war was would have on the price of crude oil. Predictions are made of on how much gas prices will rise and what they are expected to peak at. Finally the article concludes that even if international prices improve their will still be an increase in price of gas.
Mankiw, N. G. (2004). Principles of economics (3rd ed.). Chapter 5 Elasticity and its application.
Chicago, IL: Thomson South-Western.
Tanneenu, M. (2006). Global Thirst, Fears Keep Gas prices High. Retrieved September 13,
2007, from
http://cnn.worldnews.printhis.clickability.com/pt/cpt?action=cpt&title=CNN.com+-
+Glob.
Global Thirst, Fears Keep Gas prices High starts of with history of gas prices and basic statistics of gas price spikes. The article also details the prices and statistics for crude oil prices. Going into some background on previous periods of major inflation the article gives statistical data on comparison between then and now. The article also gives details on why the oil prices have been increasing due to issues of global supply and demand, citing that other countries previously not consumers of oil are now facing increased needs in energy. The article goes on to discuss the impact war, and fighting have on the current fluctuations on gas prices and what the long term effects might be. The article then goes into spare reserves and how they are dwindling and finally concludes with a look to the future of gasoline prices and how the global economy will be effected.
(2003). Just before war: Price of Oil Hits 26-Month High After Bush's Comments on
Iraq. Retrieved September 13, 2007, from http://zfacts.com/p/377.html.
Just before war: Price of Oil Hits 26-Month High After Bush's Comments on Iraq. discusses the impact of President Bush’s comments on Iraq just before the war began and the ‘US’s low inventories of heating oil and gasoline’ on the price of gas. The article also sites that a Man financial energy broker about the rates of supply and demand going into the war. Statistics on crude oil costs are listed for the US and England citing demonstrating how much of an impact the war was would have on the price of crude oil. Predictions are made of on how much gas prices will rise and what they are expected to peak at. Finally the article concludes that even if international prices improve their will still be an increase in price of gas.
Mankiw, N. G. (2004). Principles of economics (3rd ed.). Chapter 5 Elasticity and its application.
Chicago, IL: Thomson South-Western.
Tanneenu, M. (2006). Global Thirst, Fears Keep Gas prices High. Retrieved September 13,
2007, from
http://cnn.worldnews.printhis.clickability.com/pt/cpt?action=cpt&title=CNN.com+-
+Glob.
Global Thirst, Fears Keep Gas prices High starts of with history of gas prices and basic statistics of gas price spikes. The article also details the prices and statistics for crude oil prices. Going into some background on previous periods of major inflation the article gives statistical data on comparison between then and now. The article also gives details on why the oil prices have been increasing due to issues of global supply and demand, citing that other countries previously not consumers of oil are now facing increased needs in energy. The article goes on to discuss the impact war, and fighting have on the current fluctuations on gas prices and what the long term effects might be. The article then goes into spare reserves and how they are dwindling and finally concludes with a look to the future of gasoline prices and how the global economy will be effected.
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