Gas Prices Going UP!!

Scott Johnson · **Posted:** Thu Sep 01, 2005 9:01 am

jimpastorius wrote:

If supply is reduced, you must reduce demand. That is done in one of two ways, increasing the price of the goods or rationing the goods.

Choose your poison.

Econ 101.

Jim wasn't asleep or hung over that day

100% correct as well.

My weekend plans?

Tow the old Celica (a gas hog) with the truck (gas hog) and enjoy my weekend.

Scott

Rich Anderson · **Posted:** Thu Sep 01, 2005 9:02 am

jimpastorius wrote:

You compared the situation to water and drought. If you are going to introduce price controls, you must introduce controls that will limit demand. By your reasoning, we will simply run out of gasoline a lot sooner if you left the price @ $2.50 a gallon without decreasing demand in some way.

If supply is reduced, you must reduce demand. That is done in one of two ways, increasing the price of the goods or rationing the goods.

Choose your poison.

But you are COMPLETELY missing the fact that, like water, gasoline demand does not fluctuate dramatically, especially not in the short term. Gas prices have gone up 70% in the last three years, yet the amount of fuel sold is greater than it was three years ago. Kids still have to go to school, people are still going to work, cops are still on patrol and all this uses gas. If gas prices spike, this will not stop. The largest portion of gasoline demand is inelastic. All that has been accomplished thus far is to exacerbate a situation where a small few benefit from the situation.

Rich Anderson · **Posted:** Thu Sep 01, 2005 9:04 am

scottjohnson wrote:

jimpastorius wrote:

If supply is reduced, you must reduce demand. That is done in one of two ways, increasing the price of the goods or rationing the goods.

Choose your poison.

Econ 101.

Jim wasn't asleep or hung over that day

100% correct as well.

Scott

Inelastic demand commodity pricing must be covered in a 200 level class then. :roll:

MikeWhitney · **Joined:** Wed Aug 20, 2003 9:15 pm **Posts:** 4724

Jason Mauldin wrote:

My tanks have not been topped off, and I won't fill them until they are down to a 1/4 tank just like I always do. If we run out, then I'll just use my sick days or convince my boss that I should work from home.

I'm right there with ya man. I don't intend to become part of the problem. Other people need gas more than I do, and I'm not going to take away their supply.

Then again, I have been working from home 4/5 of the time, and I own 6 running cars, all with at least 1/2 tank. So if fuel is in short supply and one runs out, I just take the next one

Unfortunately my highest-MPG car is the one I hate driving the most ... the rallybeater ETA

Sorry to contribute nothing useful to this discussion!

Jason Mauldin · **Posted:** Thu Sep 01, 2005 9:18 am

Rich Anderson wrote:

scottjohnson wrote:

jimpastorius wrote:

If supply is reduced, you must reduce demand. That is done in one of two ways, increasing the price of the goods or rationing the goods.

Choose your poison.

Econ 101.

Jim wasn't asleep or hung over that day

100% correct as well.

Scott

Inelastic demand commodity pricing must be covered in a 200 level class then. :roll:

I thought earlier, you were saying that the government created a situation which increased demand? In which case, it would no longer be inelastic, right?

Vincent Keene · **Posted:** Thu Sep 01, 2005 9:23 am

MikeWhitney wrote:

Unfortunately my highest-MPG car is the one I hate driving the most ... the rallybeater ETA

I'm just glad that all three of the cars that sit in my yard get over 30MPG. I guess if you can afford a gas-hog SUV, you can afford the gas to go with it.

Rich Anderson · **Posted:** Thu Sep 01, 2005 9:24 am

Jason Mauldin wrote:

I thought earlier, you were saying that the government created a situation which increased demand? In which case, it would no longer be inelastic, right?

The created a surge in short term demand. Gasoline use will not change so actual usage demand is not affected. Usage is what terms traditional demand, in the supply and demand dynamic. In this case, the announcement drove up demand for people to fill their tanks, even if they didn't need it. Daily demand can and does fluctuate. More fuel is purchased on some days than others. However, in this situation, all that has been done is create a rush for gas with no help for the supply problem, not help for usage demand and no protection from price gouging. I fail to see how this is the action of a responsible government.

Wes Eargle · **Joined:** Mon Oct 27, 2003 9:47 am **Posts:** 3683

Jason, if you mean that Bush created both unilaterally and singlehandledly all of the demand in China and India that has pushed the price per barrel of crude upwards, then used his magical sorcery to push a hurricane away from his brother's state and into the bayou so that he would help pad the pockets of his Texas cronies, then yes.

Jason Mauldin · **Posted:** Thu Sep 01, 2005 9:28 am

Wes Eargle wrote:

Jason, if you mean that Bush created both unilaterally and singlehandledly all of the demand in China and India that has pushed the price per barrel of crude upwards, then used his magical sorcery to push a hurricane away from his brother's state and into the bayou so that he would help pad the pockets of his Texas cronies, then yes.

No, I'm referring specifically to what has occured here in NC. The price of crude has changed very little due to this hurricane.

jimpastorius · **Posted:** Thu Sep 01, 2005 9:28 am

Rich Anderson wrote:

scottjohnson wrote:

jimpastorius wrote:

If supply is reduced, you must reduce demand. That is done in one of two ways, increasing the price of the goods or rationing the goods.

Choose your poison.

Econ 101.

Jim wasn't asleep or hung over that day

100% correct as well.

Scott

Inelastic demand commodity pricing must be covered in a 200 level class then. :roll:

I actually enjoyed my 400 level micro and macro econ classes :shock:

The only econ class I did not get an 'A' in was a 400 level micro econ class...ended up with a 'B'

You are right that gasoline demand does not fluctuate dramatically. But you are wrong that demand is inelastic. I can assure you at some price point the demand for gasoline will decrease! From the charts and data I have seen, that will come in around $3.50 a gallon.

Your solution is the worse possible idea for the current situation. By limiting the price and not reducing demand, all of those mothers in their SUV's and mini vans can drive Joey to school instead of using the bus. That is until gasoline runs out for everyone...even your wife and the cops.

But let the price run up to $6, Joey is on the bus and the cops will have plenty of fuel.

Rich Anderson · **Posted:** Thu Sep 01, 2005 9:37 am

jimpastorius wrote:

Your solution is the worse possible idea for the current situation. By limiting the price and not reducing demand, all of those mothers in their SUV's and mini vans can drive Joey to school instead of using the bus. That is until gasoline runs out for everyone...even your wife and the cops.

But let the price run up to $6, Joey is on the bus and the cops will have plenty of fuel.

Theoretically, you are correct. But the facts do not work with this theory. There is already a shortage to the point that some stations are dry. Were this long term, I would agree with you, however, we are talking about a temporary interruption. By allowing gas prices to soar due to a short term problem, you are creating a condition that could artifically elevate fuel prices long term. We are too far into this for your solution, IMO. If we were going to drive down demand, it would have to have started immediately that the supply problem was recognized. When gas stations are out of gas already, all you have done is create a situation for panic.

MikeWhitney · **Joined:** Wed Aug 20, 2003 9:15 pm **Posts:** 4724

jimpastorius wrote:

You are right that gasoline demand does not fluctuate dramatically. But you are wrong that demand is inelastic. I can assure you at some price point the demand for gasoline will decrease! From the charts and data I have seen, that will come in around $3.50 a gallon.

I was just about to ask if anyone had any real data on that curve. I just found an analysis of past transportation-sector gasoline usage, and if I'm reading the numbers correctly -- in the $2/gal portion of the range, the elasticity they calculated is -0.3 million barrels of gasoline per $1.00 of fuel increase per day.

That's pretty damn small but not inelastic. I'm sure that number (the slope of the supply/demand curve) increases (decreases) at higher prices (like the $3.50 you mention).

I'd love to see a real graph of this... Price vs quantity, based on historical usage and forecasted at higher prices (which would have to be extrapolated or based on calculations or surveys)

Rich Anderson · **Posted:** Thu Sep 01, 2005 9:44 am

Jason Mauldin wrote:

Wes Eargle wrote:

Jason, if you mean that Bush created both unilaterally and singlehandledly all of the demand in China and India that has pushed the price per barrel of crude upwards, then used his magical sorcery to push a hurricane away from his brother's state and into the bayou so that he would help pad the pockets of his Texas cronies, then yes.

No, I'm referring specifically to what has occured here in NC. The price of crude has changed very little due to this hurricane.

Although with growing reports of Gulf drilling platform destruction, this could also change and create a much greater, longer term problem. The USA is the world's third largest producer of crude, and much of it comes from the Gulf. This sequence of events just highlights the fact that the global energy situation is not simple and we are not always able to control things to our favor.

Rich Anderson · **Posted:** Thu Sep 01, 2005 9:52 am

MikeWhitney wrote:

I'd love to see a real graph of this... Price vs quantity, based on historical usage and forecasted at higher prices (which would have to be extrapolated or based on calculations or surveys)

Got that somewhere. But as I said before, 70% increase in fuel prices in the last year has not cut demand one bit.

Scott Johnson · **Posted:** Thu Sep 01, 2005 9:56 am

Somewhere someone seemed to imply that gas demand = constant (ish).

That means no one was planning to travel on Labor Day weekend? No trips to the beach, etc?

That's good, because they might not find gas to fill up the family truckster along the way.

Gas prices would have been up 10-15 cents per gallon this weekend because it's Labor Day, not we've got a double whammy.

Tell the folks planning to attend the *might-be-cancelled* test and tune that everything is dandy.

Scott

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