Eco365 Week 1 Article Analysis

Gasoline Article Analysis

ECO/365 Principles of Microeconomics

August 9, 2012

Gasoline Article Analysis

United States Oil Futures are on the rise bolstered by the Department of Labor’s report of the creation of 163,000 jobs in July. Oil prices had fallen below $78-per barrel as of June and jumped to $91.40-per barrel in trading. Prices have also been affected by sharp rises in European Brent crude (Geman, 2012). Another jump in prices is being felt because of the recent fire at Chevrons Richmond, California refinery. That fire has decreased the output of gasoline and diminished the amount available on the market adding to the price increases (White, 2012).

Gas prices are predicted to rise to close to $4-per gallon before easing back down after Labor Day (Geman, 2012). According to Colander (2010), “Utility is the pleasure or satisfaction people get from doing or consuming something and the price of doing or consuming that something.” Gas prices are historically higher during the summer months because of the ingredients the refineries use in their summer blends to meet pollution restrictions (Geman, 2012).

Prices in the gasoline market are tied to oil futures and the cost of refining and transporting the product to market. When a refinery experiences equipment failures or a fire in its facility, gasoline prices are directly affected. Consumers bear the brunt of this burden because the costs are passed on to them by the retailer’s.

Another contributor to high gasoline prices is political turmoil. The Middle East has experienced civil unrest and political upheaval which has reduced the amount of crude oil that region typically exports (Geman, 2012). Sanctions against Iran and Mitt Romney’s tough talk about their nuclear program while on his visit to Israel are believed to have influenced energy prices as well (Geman, 2012).

In my opinion the demand for gasoline is inelastic because price changes have little effect on the quantity of gas...