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Chapter 15 learning objectives
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The Price of Gasoline
What you are paying for when you buy a gallon of gasoline? Most people complain about the high cost of gasoline, but few understand how the price is calculated. Many people think this cost is for gasoline only, but many other factors determine what you pay at the pumps.
Gasoline is a mixture of the lighter liquid hydrocarbons, and used chiefly as a fuel for internal-combustion engines “Microsoft Encarta,” 2005). Crude oil accounts for nearly 17 percent of the energy consumed in the United States. Gasoline is one of the main products developed from crude oil in the United States. The primary use for gasoline is in automobiles and light trucks. Fuel produced all year round, and is delivered from oil refineries through pipelines to a massive distribution chain serving 167,000 retail stations throughout the United States (“EIA Brochures”, 2004).
The prices paid by consumers at the pump reflect the cost to produce and deliver gasoline to consumers. Included is the cost of crude oil to refiners, refinery- processing costs, marketing and distribution costs, and finally the retail station costs and taxes. Approximately 27 percent of the cost of a gallon of gasoline is federal, state, and local taxes. Another 14 percent is a combination of distribution, marketing, and retail dealer costs and profits. Refining costs and profits account for about 15 percent of the retail price of gasoline. This part varies from region to region due to the different formulations required in different parts of the country (“EIA Brochures”, 2004) .
The average retail price for gasoline tends to be higher in certain States or regions than in others. According to the Energy Information Administration (EIA), other factors contribute to regional and local differences in gasoline prices aside from taxes. Special gasolines are required in some areas of the country. Environmental programs, aimed at reducing carbon monoxide, smog, and air toxins, require oxygenated reformulated, and low-volatility (evaporates more slowly) gasoline, which comes at a much higher price (“EIA Brochures”, 2004).
The proximity of refineries to crude oil supplies can be a factor, as well as shipping costs from the refinery to market. In addition, the areas farthest from the Gulf Coast are the source of nearly half of the gasoline produced in the United States, and th...
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...ors that go into that price. Whether it’s the taxes charged by federal state, and/or local government, the amount of competition in the region, the region’s proximity to a reliable gasoline supply or even emissions regulations. The price of the fuel we buy is carefully calculated and is subject to many variables. Informed consumers should understand these factors, and keep them in mind each time they fill their tanks.
Reference
California Energy Commission, Media and public communications office, (1994-2008), page
updated 03/17/2007 Retrieved 05/19/2007 from http:///www.energy.ca.gov/gasoline_q- and-a.html
Energy Information Administration, (2003) California gasoline price study: preliminary
findings, Retrieved 5/04/2007 from
Http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2003/cagasoline/cagasoline.pdf
Specialized Information Services, A primer on gasoline prices, publication number DOE/EIA-X040, (released June 2007), Retrieved 5/04/2007 from Http://www.eia.doe.gov/neic/brochure/oil_gas/primer/primer.htm
Speir, Robert A, Investigation into the current run-up in gasoline, (2004-2008) Retrieved 5/18/2007 from Http://www.iic-inc.com/curr.shtml
Scherer, Ron. "US to Tap Strategic Petroleum Reserve to Drive Gas Prices down." The Christian Science Monitor. The Christian Science Monitor, 23 June 2011. Web. 09 Apr. 2012.
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"United States Oil - Exports - Economy." Index Mundi - Country Facts. Web. 26 May 2011. .
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According to Ford, most of its sales for hybrid vehicles were in California (Freeman, 2007). According to AAA, California has some of the highest gas prices in the nation at $3.14 for regular grade gasoline. The only state with gas prices higher than California is Hawaii, at $3.46 for regular gasoline. In California, consumers are paying a couple of thousand dollars above the sticker price for the Ford Escape (Freeman, 2007). The supply of the Ford Escape was lower in many areas because most of the Ford Escapes that were being produced were being shipped to California (Freeman, 2007).
Wright, R. T., & Boorse, D. F. (2011). The U.S. dependency on foreign oil presents many negative impacts on the nation’s economy. The cost of crude oil represents about 36% of the U.S. balance of payments deficit. Wright, R. T., & Boorse, D. F. (2011). This does not directly affect the price of gas being paid by consumers, but the money paid circulates in the country’s economy and affects areas such as the job market and production facilities.
The article by Mike Moffatt shows the price elasticity of demand for gasoline. According to Molly Espey the average price elasticity of demand for gasoline in the short- run is-0.26 and -0.58 In the long-run, which is a 10% raise in the price of gasoline lowers quantity demanded by 2.6% in the short- run and 5.8% in the long- run.Also, there are a studies were conducted by Phil Goodwin, Joyce Dargay and Mark Hanly at review of income and price elastics in the demand for road traffic and each of them has different study. Furthermore, the realized elasticities depend on factors such as the timeframe and locations that the study covers. If the gas taxes will rise, will cause consumption to decrease.
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With a gasoline-fueled vehicle, buying gas to operate your car is a never-ending process. With the high price change of gasoline and oil, operating a gasoline-fueled vehicle tends to be very costly. While there are some types of small gasoline vehicles that get much better gas mileage than larger vehicles, even the most powerful gasoline cars will normally desire a contribution every month. According to some experts the only way a mainstream market for green vehicles wills materlize is with a pronounced and prolonged rise in fuel prices. (Buss, 4)
b. Opportunities and Threats: The increase in fuel prices is likely to continue into the distant future, requiring either reduced services to control costs or new technologies to accommodate. The threat of low cost, flexible companies entering the markets in a variety of places, cutting into market share in numerous small areas, taken as a whole, threatens to harm larger c...
What is the reason that gasoline and fuel prices are so high? Most people believe it is because of OPEC raising the price of oil. This answer is only partially true. In fact, there are several others factors that must also be taken into account when determining the cause of high fuel prices in the United States and in other parts of the world.
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