This morning Morning Feature will look at $5 a gallon gas.
The Tuesday Digging Deeper Morning Feature surveys an ongoing news topic through multiple sources to invite in-depth conversation. Please check back over the coming days for additional comments.
This week’s Digging Deeper topic is $5 a gallon gas.
We are not talking about $5 a gallon gas as an exact figure. It is a placeholder for “charging enough for a gallon of gas that it makes people think about alternatives to driving”. In economics terms, it is the point where demand becomes elastic, that is, the price will make you buy less of a product.
The determinants, the factors which can affect price elasticity, are:
• Availability of substitute goods: the more and closer the substitutes available, the higher the elasticity is likely to be, as people can easily switch from one good to another if an even minor price change is made
• Percentage of income: the higher the percentage of the consumer’s income that the product’s price represents, the higher the elasticity tends to be, as people will pay more attention when purchasing the good because of its cost
• Necessity: the more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price.
• Duration: for most goods, the longer a price change holds, the higher the elasticity is likely to be, as more and more consumers find they have the time and inclination to search for substitutes
• Who pays: where the purchaser does not directly pay for the good they consume.
This price point could be $10, it could be $20. But one oil company executive thinks that we will see $5 a gallon gas in 2012 .
The article that piqued my interest was from Sunday night’s EcoNews Roundup. It was prompted by the oil executive’s comment about $5 a gallon gas and it recommended getting ahead of this to make the case for changing the national conversation about oil rather than allowing the oil companies to use it as an excuse to expand drilling.
“The opportunity is that if we get ahead of this message, rising oil prices will present environmentalists and groups concerned with the impact of oil dependence on our economy and national security with an opportunity to make the case to the American people for a fundamental transformation of our energy and transportation priorities. […]
If we can build a movement for serious solutions to oil dependence, then $5 per gallon of gasoline could provide us with momentum to finally begin to end this cycle. Those of us who are tired of the stranglehold that Big Oil has on our economy can seize the opportunity to connect with the middle class, break through partisan gridlock, protect our coasts and our climate from dirty fuels, and achieve significant transportation reform. If we fail to get that message out there, then $5 per gallon gasoline will be the weapon that Big Oil and their allies use to alienate middle class Americans from environmentalists and beat us in every key drilling related campaign. “
Demand for gasoline is down. Will it stay down?
Demand Down due to economy
U.S. oil demand growth is faltering under the weight of high prices and mounting economic problems in the world’s top consumer as trucking traffic slows and motorists reduce travel.
Growth in the giant market over the past four years has averaged more than 1 percent despite a tripling of oil prices over the period as demand from China and India surged.
New reports suggest that the demand for gasoline in America reached its peak in 2006. Since then, the demand has continued to drop, and will continue to decline permanently.
The nature of America and its dependence on oil is well documented, exceedingly so. It is the blood that flows through the veins of our nation. It is the power that defines our identity and the fuel that powers the world. It is also one of the greatest source of anxiety for the future of humanity, as the fossil fuel reserves dwindle.
Who pays? Not us, directly
How much are we paying for a gallon of gas?
We pay about $3.00 for a gallon of gasoline at the service station. But the real price of gas is much higher and camouflaged by myriad direct and indirect costs associated with maintaining our oil economy.
According to the National Defense Council Foundation, the economic penalties of America’s oil dependence total $297.2 to $304.9 billion annually. If reflected at the gasoline pump, these “hidden costs” would raise the price of a gallon of gasoline to over $5.28. A fill-up would be over $105.
I encourage you to follow the links and read the articles. For this Digging Deeper, however, the determinants of price elasticity are what I am most interested in digging deeper into. Can we make the specter of $5 a gallon gas the factor that finally makes us aggressively seek alternatives to the personal automobile?
Here are some questions to get us started, not in any order and not intended to be all inclusive:
1. How inelastic is the price of gas?
2. Can we wait for the price of gas to get to a point where people stop buying it? Will the price point keep moving?
3. $5 a gallon gas would be hard on lower income people. How much pain can they bear? Can we ask them to bear it?
Please share your thoughts and additional links in the Comments.
At BPI Campus.com our Progressive Agenda is:
1. People matter more than profits.
• Corollary: Each person matters … equally.
2. The earth is our home, not our trash can.
3. We need good government for both #1 and #2.