September 28, 2010

Motorists getting lower gas prices

In this article we are addressing gas prices rising in different regions. The fact that the gas prices are rising deals with supply and demand and consumer theory. This also indirectly deals with the theory of the firm but we have not talked about this so I will focus on the consumer theory. In this article the writer is talking about the gas prices falling due to the pipeline shutdown in Illinois. The writer also anticipates that the gas prices would remain high in the west due to the Gulf shutdown. This is an economic explanation, but what the write is leaving out of the article is what the consequences of the shutdown will be. The writer makes not assumptions in this article.

In this article the writer does describe the conditions that influence the gas prices. The article talks about the gas prices and it talks about the pipeline being shut down. In the Midwest the prices are increasing due to the pipeline shutdown. The pipeline shutdown is what is causing the prices in this region to increase.

In the West the consumers are rushing to the pumps. What the article does also discuss is that the consumers are anticipating the prices to go back up so they are rushing to the pump. What the writer does not talk about is that if the demand for gas goes up then the price will also increase.

The author’s logic excluded anything that refers to the consumer theory in both cases. My conclusion is that in the Midwest there will be a shift to the left in the demand curve due to the price increase of gas. Consumers result to the substitution effect will decrease. Income will exceed the substation effect, and this will reduce the amount of driving they do. The consumers will drive but will also be hesitant to substitute other gas or activates for driving. This will make the gas prices inelastic.
Having the consumers rush to the gas pumps will also make the gas prices inelastic due to the need for gas. The only thing that will change is the consumers’ expectations.

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