Gm 545

Keller Graduate School of Management

Business Economics GM545

Online Graduate Course

Winter Session A, January 2012

Project Part 1

16 January 2012

adeolaadesokan@yahoo.com

Exercise 1: Everyone’s Gasoline problem.

The fluctuation in gasoline prices happens due to various factors like problems in the Middle East and increased demand from various part of the world. Gasoline is not the same as chewing gum, a large rise in the price of chewing gum might cause you to give it up: that are not so easy with gasoline. You might drive less but overtime however, may consider alternatives such as buying a smaller car or a hybrid that gets much better gas mileage, or carpooling or public transportation. The 15% drop in sales in 2007 of large gas-guzzling sport utility vehicles (SUVs) tells us that over time, people responded to the steady rise in gasoline prices by cutting their quantity of gasoline purchased. In economics terms: We know that the price of gasoline is one variable and the quantity of gasoline demanded is the other variable. The amount of gasoline we buy does not change very much in the short run even though the price might rise. Over the long run, the rise in the price of gasoline has led to some attempts to cut back usage. We can speculate that there will be greater attempts to use less gasoline as prices rise. But how much does the price have to rise before quantity demanded falls significantly? The concept of elasticity lets us measure the relative change .When gasoline prices rise suddenly; most consumers cannot immediately change their transportation patterns, so gasoline sales do not drop significantly. However, as gas prices continue to remain high, we will see shifts in consumer behavior, to which automakers will respond by producing smaller, more fuel-efficient hybrid cars.in quantity demanded for various changes in the price of gasoline. (Stone, Gerald. Core Economics. Worth Publishers, 07/2011. p. 111).

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