Pashion A. Williams
ECON545: Project 1—Microeconomic Analysis
May 22, 2014
INTRODUCTION TO THE SITUATION
Owing to the fact that the crude oil prices have increased over the years, venturing into this business appears profitable. According to an online blog, people are facing very high prices of gasoline recently, and they are tired somehow of it. Since the way American’s spending patterns have changed, they are getting used to higher prices of gasoline. Estimates show that the demand from the Asian countries is increasing day by day, and this will lead to even higher prices. So it seems as a good option to invest in gas stations which have convenience stores too.
But then there might be chances that the shift in consumption patterns might take people away from gas stations, as in they might induce people to drive less. The convenience stores can also suffer because of the fact that a greater share of the budget now goes to fuel expenses. So these changes might lead the economy to a situation where there is a very slow growth in consumption.
Now since opening up a gas station requires a good chunk of investment, it makes sense to study the past performances of the gas demand and supply in U.S. It also makes sense to find out the predicted changes in the consumption patterns as a result of soaring gas prices, so as to invest in the gas station. Also it makes sense to put a little thought on how the macroeconomic variables have been performing in the country and how they are supposed to perform, so that a complete assessment could be made before suggesting anything.
RELEVANT ECONOMIC PRINCIPLES AND DATA
Law of demand: It says that everything else remaining equal, when the price of a product rises, its demand fails.
Determin...
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... percent; however there are chances that it will ease out. Also the demographic structure is changing, since the aging baby-boom generation, worker aged 55 and older are expected to make up over one-quarter of the labor force in 2022.
Also according to trading economics, the interest rates are going to be stable and low at 0.25%, so it’s a good time to take loans for investments. The monetary policy is also going to ease out a bit according to the Fed’s plan. The business cycle looks to be pretty much in shape. Furthermore, government spending and federal deficit have been declining over the past year more rapidly than would be expected given the slow pace of recovery and the typical countercyclical pattern of fiscal policy. This gives a boost to the fact investment will pay off.
So I will recommend Cousin Edgar open up the gas stations.
REFERENCES
In economics, particularly microeconomics, demand and supply are defined as, “an economic model of price determination in a market” (Ronald 2010). The price of petrol in Australia is rising, but the demand remains the same, due to the fact that fuel is a necessity. As price rises to higher levels, demand would continue to increase, even if the supply may fall. Singapore is identified as a primary supplier ...
While studying the industry as well as the Chevron Corporation, I have been able to found a gap between consumption and production capacity which is expected to widen more from now with the demand side for energy exceeding the supply side of them same. Reserves has started to yield lesser outputs, as per the statistics of HIS energy, which claim such case to be applicable nearly 90% of all known energy reserves. In addition to that, the discoveries of new oil fields have slowed down, and studies have revealed that a new groundbreaking discovery of any oil reserve is yet to be made since 2002. These studies can easily provides enough evidence to conclude that the production patterns will only continue to diminish in futures, if dependency is on the existing ones, unless some new discoveries are made, many of the related projects being still in the pipeline, with no reliable or expected date of production start. This usually restricts companies in such industries to organically grow, leaving them with the only financial growth option to merge, horizontally or vertically, with another in the same or related industry.
The United States is the leading economy across the globe and experienced several tribulations in the recent past following the 2008 global recession. Despite these recent challenges, there are expectations among policymakers and financial experts that the country will experience solid economic growth. Actually, financial analysts have stated that the U.S. economy will be characterized by increased consumer spending, increased investments by businesses, reduced rate of unemployment, and reduction in government cut. Some analysts have also stated that the country’s economy will strengthen in 2014 with an average of 2.7 percent or more. However, these predictions can only be understood through an analysis of the current macroeconomic situation in the United States.
To understand the increase in gas prices, one must first identify the distribution of dollars paid per gallon at the pump. According to the U.S. Energy Information Administration (eia) in 2010, the annual average paid at the pump consisted of 68% crude oil, 7% refining, 10% distribution and marketing, and 15% taxes (see Fig.1). This shows an increase of crude oil over the 2000-2009 average of 51%. (e. I. Administration)
He contends that the law of demand is the most famous in economics and is also the truest law for many economists. One of the reasons for this belief is that elasticities allow economists to quantify differences among markets without standardizing the units of measurement (Aycock, 2010). The law of demand explains that, other things equal, when the price of a good rises, the quantity demanded will fall and when the price of a good falls, the quantity demanded will rise. In terms of elasticity, the price elasticity of demand (PED) measures how sensitive consumers are to a change in price (McConnell et al., 2015, p.134). Prices are elastic when a change in price causes a larger percentage change in quantity demanded. For example, if the price of a Snickers bar falls 20% but demand increases by 80%, PED = -4.0. This change in price may prompt consumers to buy alternative candy bars. Inelastic price changes causes a smaller percentage change in quantity demanded. If the price of tobacco falls 30% but demand only increases by 10%, PED = -0.33. Since it is so addictive and does not have a substitute, if the price of cigarettes increases people who smoke will likely continue to do so (Pettinger,
The automotive industry is considered elastic. The prices fluctuate depending on supply and demand. For example, when the economy takes a downturn and car sales are down the automakers attach incentives to the purchase of new vehicles to stimulate sales such as interest-free loans, rebates and lowered prices to encourage Americans to purchase their goods. Substitutes are available in the foreign car market. Lower cost, more fuel efficient models are available from many foreign car makers. Policy makers have placed limits on the amount of foreign cars that can be sold in the United States but in recent years the demand is higher so policy makers must respond to that demand. Past statistics tell the story of when fuel prices surge, smaller fuel efficient cars are more in demand. Higher fuel prices cause households to reallocate money from other areas to purchase fuels at higher prices because fuel is needed for transportation to and from work. When fuel p...
Since there were no fuel economy standards established by the government until 1975, the fuel efficiency of automobiles steadily declined. In the early 1970’s, the average American vehicle got less than 13 miles per gallon. However, in 1973, the Organization of Petroleum Exporting countries placed an embargo on all the oil that was sent to the United States as a way to get retaliation for America’s support of Israel in the Six Days’ War. The long lines and gas rationing that this embargo initiated made many Americans realize how dependent they were on foreign oil. The thought that they reli...
In contrast the Power of Baby Boomer generation is slowly dying off and how many are there and how will contract the effect of America’s workforce. The Boomers are now at 74.9 million and are beginning to retire. They were the largest generation that had its highest numbers at 78.8 million in 1999. The near 79 million were born from 1950-1965. The productivity is expected to decrease to 16.6 million by 2050. The traditional and social hierarchies of this generation will go with
Gasoline and the economy, the impact it has on the society. The current gas prices have a larger impact on consumer spending, however not so much on the percent of gasoline purchased, after all people still have to drive themselves places. (consumer psychologist.com) A major increase in cost will be necessary to lessen the quantity demanded. Gasoline is too costly and harmful to the economy and the environment thereby society needs to find alternative fuels, which best serve, the society.
In the United States, modern car manufacturing has been historically dominated by the American companies including Ford Motor Co., Chrysler Group LLC, and General Motors Co. These three companies, known as the Detroit Three, controlled 95% of the market in the 1950’s and the dominance continued until the beginning of the 21st century. In the 1980’s Japanese auto manufacturers entered the United States, a decade later the Germans, and finally in 2000’s the Koreans. By the end of 2009, the Detroit Three only accounted for 45% of the total U.S. auto market. Another factor that had influence on this was constant fluctuations in gasoline prices and price sensitive consumers. According to the U.S. Department of Energy, gas prices hit record high averaging $3.07 per gallon in May 2007 and kept climbing up to $4.08 in July 2008. As gas prices kept increasing, consumer buying trends have been changing. In 2006 sales for SUVs, pickup trucks, and vans dropped 16%, while the market for compact cars rose by 3%. Unfortunately, the Detroit Three were not prepared for this since their...
At this point in the oil market, the barriers to entry were extremely low. One could buy a small refinery for $10,000 and a large...
My father, Matthew Monroe, works for an oil company, which gives me some perspective on how low gas prices can impact the workers negatively. In 2013, I thought my dad had the best job, he made great money, had a fantastic schedule and was up for promotions. When the gasoline prices started veering towards $2.00 per gallon, my dad got laid off, for months. He had to pick up odd jobs just to get by. Finally the gas prices started to go up again and he was able to get back to work. This is case for many employees in similar fields. “Oil has dropped from $107 a barrel to $50”, says Matt Egan with CNN Money.
A vehicle is one of the biggest purchases a person will ever make. Over the years, the prices of an automobile have increased due to the rise of inflation. Due to a price index, the price of an automobile changes over a certain period of time. Economists compare averages of automobiles to calculate the cost of each vehicle that presents itself on a car lot. When all of the above is calculated within the purchase of an automobile, it affects every area of making the automobile to selling the automobile. All of these factors are impacted together for the automobile industry as a whole.
One of the industries that prospered due to the automobile industry, was the oil industry. Automobiles ran on gas, so the demand for gas, or oil, was high.
In conclusion, generally speaking the Law of Supply states that when the selling price of an item rises there are more people willing to produce the item. Since a higher price means more profit for the producer and as the price rises more people will be willing to produce the item when they see that there is more money to be earned. Meanwhile the Law of Demand states that when the price of an item goes down, the demand for it will go up. When the price drops people who could not afford the item can now buy it, and people who are not willing to buy it before will now buy it at the lower price as well. Also, if the price of an item drops enough people will buy more of the product and even find alternative uses for the product.