Essay on "Gasoline Prices the Mystery"
Essay 4 pages (1220 words) Sources: 1 Style: APA
[EXCERPT] . . . .
Gasoline PricesThe Mystery of Gas Prices
In spring of 2006 rapidly rising gas prices were on everyone's mind. An article by Horsley (2006) examined the economic and political circumstances behind the rising gas prices. Gas prices are one of the most complex supply/demand relationships in the market. The factors discussed in the article still hold true today and continue to drive gas prices.
According to Horsley, the biggest factors in rising costs are the costs of crude oil and the cost of refining. The price of crude oil accounts or nearly 2/3 the final price of the final gasoline price. When gasoline was at $2.90 per gallon, the cost of crude accounted for $1.60 of the price. Crude rose 33% in 2005, due to political problems that affected the ability of oil producing countries to meet the supply.
Refining costs add approximately another 64 cents to the gasoline price. Refineries in the Gulf of Mexico stopped producing due to hurricanes. Refineries were also incapacitated due to the need to adjust their production to accommodate new requirements for low-sulfur fuel and the phase-out of the gasoline additive MTBE (Horsley, 2006). Taxes add another 55 cents to the price and distribution and marketing costs add another 11 cents per gallon. Big oil companies make most of their money by producing crude oil. There profits today are a result of speculation that took place when prices for crude were much lower (Horsley, 2006).
Oil prices are not set by the oil companies; they are set by the global market. Global demand has increased as countries like India and China become wealthier and more dependent on gasoline.
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Government Interaction and Gasoline Prices
The U.S. government has interacted with the oil market, perhaps more than any other consumer product. One of the primary methods of intervention has been to encourage the development of alternative energy and more fuel-efficient vehicles (Horsley, 2006). In order to encourage development of these more fuel-efficient cars, the government issues tax breaks for the purchases or hybrid vehicles and fuel-efficient diesel cars (Horsley, 2006).
In addition to encouraging Americans to decrease dependence on foreign oil. The government has conducted investigations concerning alleged "price gouging." They found that artificial price gouging on the part of gasoline retailers was not the case (Horsley, 2006). The government considered a windfall profits tax to make price gouging unattractive (Horsley, 2006). However, the oil companies fought on the basis that this would limit their ability to invest in new oil fields and refineries (Horsley, 2006).
Government measures regarding gasoline prices at the pump have targeted methods to manipulate supply and demand. They have also focused on making certain that prices are fair and that they are being driven by the capital markets instead of monopolies and oligopolies in the oil industry. Tax measures have focused on encouraging consumers to be more fuel-efficient and to reduce demand. Tax measures against gasoline producers are punitive and intended to prevent unethical practices by them.
The results of these efforts appear to have had an impact on the number of hybrid vehicles being sold and on the purchase of more fuel-efficient cars (Horsley, 2006). Yet, in 2005, demand for gasoline continued to rise (Horsley, 2006).… READ MORE
Quoted Instructions for "Gasoline Prices the Mystery" Assignment:
“Locate an internet article pertaining to supply and demand of a particular product or industry where the economic role of government policies can be seen. Using concepts from the reading assignment for weeks one, two, and three; write a 600 to 1000 word paper where you provide the following:
1) briefly summarize the article*****s main points, and describe why changes occurred in supply, demand and price.
2) Indicate how government interacted in the market and how it impacted the product or industry.
3) Describe how the outcome of the market might have differed if the government had interacted differently or not at all.
How to Reference "Gasoline Prices the Mystery" Essay in a Bibliography
“Gasoline Prices the Mystery.” A1-TermPaper.com, 2009, https://www.a1-termpaper.com/topics/essay/gasoline-prices-mystery/7907138. Accessed 6 Jul 2024.
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