Running Head: Business Economics
Business Economics GM545
Instructor: Dr: Michael Sharaf
Everyone’s Gasoline Problem
We can go back to the earliest of time when vehicles were first created and gasoline was used. Dating back to the year of 1919 when gasoline price was at 25 cents per gallon, the commodity wasn’t a necessity. Many people didn’t own vehicles, so the demand for fuel wasn’t great. The population of the United States was much less then, maybe a third of what it is today. Therefore fuel consumption wasn’t great.
After World War II, dating back to 1946, the use of fuel increased, due to an increase of vehicles and transportation methods that were being implemented. During this period, there was an estimated 34 million vehicles on the road. Gasoline companies were able to keep up with the demand and prices were still low at 40 cents a gallon. In the 70’s, I remember the Arab oil embargo. I was living in New York, and I can remember the long lines and people fighting for fuel. Due to this embargo, oil imported from overseas rose from 400,000 barrels in 1949 to 1.7 million barrels per day in 1971. This increased continued to rise to 3.5 million barrels per day by 1974.
To explain this fluctuation of prices, we must understand that gasoline is created from crude oil. Crude oil is the main raw material used in producing gas. This should explain the imbalance of the ups and downs of gas prices, but that’s not the case. In straight economics, we would look at the price of gas based on the movement in the crude oil market. During the financial crisis, crude oil prices were low. During this period, the recession devalued the cost of crude oil. The result of this was gas prices were down. The transition in supply can also affect the availability of gasoline. Depending on the season, summer of winter, refineries must adjust their formulas to protect the fuel. This cost also goes...