Most feel that current gasoline prices are "too high". From an economic standpoint, why is this so?

Question

Please explain to me, using supply/demand and other economic terminolgy why gas prices have gone up.

Answer 1

This is fairly straightforward. The demand curve for gasoline as well as petroleum, whence gasoline is derived, have both shifted up. This is due to:

1. Larger populations.
-> a. Higher energy consumption
-> b. Higher demand for goods produced with petroleum
-> c. More modernized populations (ie, China and India)
2. Increase in perceived scarcity - I saw perceived because price depends more on inventory (ie, ready for sale) than on the sum total of all the oil we have left in the world, which is very large and hard to estimate (a National Geographic in 1980 said we'd run out by 1992).
- due to security threats to oil infrastructure (Nigeria, Iran)
- due to instability in oil markets (China's involvement - there was a really good article in the WSJ this week on China's efforts to capture more of the oil market)

3. Oil is an imported good, and so its nominal price (what wholesalers pay for it) depends in part on the exchange rate. When the U.S. dollar is weak relative to the currency of the exporting country, oil costs more.

It should be pretty straightforward to illustrate this on your supply/demand curves, so you can do that yourself. I suggest you think of specific changes in society that explain why:
a) consumption has increased
b) supply at the market level (as opposed to total supply) has diminished

Answer 2

ok...in the last ten years, vehicles have gotten bigger, engines have gone from the economic 4 and 6 cylinders following the gas crisi in the 1970s back to 8, big 8, and even 10 cylinder models, that get incredibly low mileage. The increase in the purchase of these vehicles has put a demand for more petroleum to fuel them.

Think about this...the automakers and the oil producing companies are really not to fault for higher prices. They are capitalists, and are out to make a profit. The real blame should be put on the American people for feeling the need to have bigger, better all the damned time. I hope they go up to $10 a gallon, just so all these mongoloids who own these monstosities will have to let them rust in the driveway.

Answer 3

A factor not mentioned is that about 70% of all oil reserves are owned by governments, not private enterprise. This means most oil fields are not well managed.

Mostly, the current price reflects political instability. If the mid-east was a stable region, prices would come down. The recent surge in prices reflects this instability.

Answer 4

Gas prices are going up because there's more demand (countries like India and China are expanding and using a huge amount of gas) and not much supply.

Answer 5

As Walter Williams has said .... the best thing about high prices is high prices. More companies will risk their capital to produce more oil and increased supply will result in lower gasoline prices.

Answer 6

Supply and Demand

Answer 7

when a commodity is limited or precious like oil and the deamand is high, there is a surge in prices.
its basic law of supply and demand

Answer 8

Emerging countries and the way we waste fuel have created a shortage of processed oil, we need more refineries.