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The analysis of such trends reflects a complex set of factors which affect the consumption patterns of consumers. According to the article the long-term trend in gasoline consumption has four points of interest which are 1973, 1979, 1992, and 2004.
In 1973 the Arab oil embargo occurred which resulted in a slight downward shift of crude oil consumption and in 1979, the year the Iranian revolution occurred, the consumption of crude oil took an even sharper turn downward as prices soared to $.75 per gallon which was a 120% increase. After 1979, consumption continued to grow slowly compared to prior years and gas prices declined. The article suggests that the downward trend in consumption may be due to the passage of the Corporate Average Fuel Economy Standards (CAFE) in 1975. CAFE required automakers to increase the fuel economy of the cars which were being produced. Over the years the CAFE requirements stopped increasing and in 1992 the consumption of gasoline increased drastically and prices remained stable. This trend provided automakers with no incentive to improve the fuel economy of the vehicles which were being produced. In 2004 the consumption of gas stopped its upward trend and flattened …show more content…
Dictionary.com defines price as “the sum or amount of money or its equivalent for which anything is bought, sold, or offered for sale.” (para. 2) Price is an essential ingredient of the law of demand. The law of demand is “quantity demanded decreases as price increases, all other things being constant” (Colander, 2004, p. 188) The substitution of alternate goods accounts for the law of demand. As the price of goods such as gasoline increases, people tend to replace it with similar goods which may have a lower price. If a good has many substitute goods, the substitution effect will be strong, and price increases will be relatively small. However, if a good is both necessary and has little or no alternatives, the substitution effect will be small which means the demand will be more constant, and prices could increase. In the case of crude oil, no substitute goods other than coal or solar energy exist. Since such substitute goods are not largely interchangeable the possibility of a sharp increase in prices is a reality. The article suggested that the most feasible solution to lessen the demand for gasoline and drive prices lower is to increase the production of more fuel efficient cars such as hybrids. As a result, as gasoline prices continue to increase consumers will purchase more hybrids and compact cars …show more content…
As the demand for oil remains constant the price will continue to rise and as the supply increase the price will also increase. A study by the Congressional Budget Office Supply found that as the price of gasoline increases consumer behavior changes. The study found that consumers “use less gasoline, drive slower, drive less, use public transit, and purchase more fuel efficient cars.” (Cooper, 2008, p. 12) However, with such changes in consumer behavior, the change in consumption has been modest. Therefore prices of fuel should remain steady or even increase in the upcoming
In 1973 the Arab oil embargo occurred which resulted in a slight downward shift of crude oil consumption and in 1979, the year the Iranian revolution occurred, the consumption of crude oil took an even sharper turn downward as prices soared to $.75 per gallon which was a 120% increase. After 1979, consumption continued to grow slowly compared to prior years and gas prices declined. The article suggests that the downward trend in consumption may be due to the passage of the Corporate Average Fuel Economy Standards (CAFE) in 1975. CAFE required automakers to increase the fuel economy of the cars which were being produced. Over the years the CAFE requirements stopped increasing and in 1992 the consumption of gasoline increased drastically and prices remained stable. This trend provided automakers with no incentive to improve the fuel economy of the vehicles which were being produced. In 2004 the consumption of gas stopped its upward trend and flattened …show more content…
Dictionary.com defines price as “the sum or amount of money or its equivalent for which anything is bought, sold, or offered for sale.” (para. 2) Price is an essential ingredient of the law of demand. The law of demand is “quantity demanded decreases as price increases, all other things being constant” (Colander, 2004, p. 188) The substitution of alternate goods accounts for the law of demand. As the price of goods such as gasoline increases, people tend to replace it with similar goods which may have a lower price. If a good has many substitute goods, the substitution effect will be strong, and price increases will be relatively small. However, if a good is both necessary and has little or no alternatives, the substitution effect will be small which means the demand will be more constant, and prices could increase. In the case of crude oil, no substitute goods other than coal or solar energy exist. Since such substitute goods are not largely interchangeable the possibility of a sharp increase in prices is a reality. The article suggested that the most feasible solution to lessen the demand for gasoline and drive prices lower is to increase the production of more fuel efficient cars such as hybrids. As a result, as gasoline prices continue to increase consumers will purchase more hybrids and compact cars …show more content…
As the demand for oil remains constant the price will continue to rise and as the supply increase the price will also increase. A study by the Congressional Budget Office Supply found that as the price of gasoline increases consumer behavior changes. The study found that consumers “use less gasoline, drive slower, drive less, use public transit, and purchase more fuel efficient cars.” (Cooper, 2008, p. 12) However, with such changes in consumer behavior, the change in consumption has been modest. Therefore prices of fuel should remain steady or even increase in the upcoming