Gasoline prices have skyrocketed over the past few months. Economically, the escalation in gasoline prices is because it takes oil to make gasoline. The cost of fueling your car has put a serious in your pocketbook. Gas prices have leaped over the $4 per gallon. Our society is dependent on our ability to fill the gas tanks on our cars.
In economic terms, gas prices are inelastic. It means normal supply and demand does not apply. One or a few entities can raise the price as high as they want because they know we have to buy it. Normally, the price of a good or service is determined by supply and demand. If there is an over supply of a good, the price goes down. If there is a shortage of something, the price goes up. When you have a normal balance between supply and demand capitalism is at work.
The point where supply and demand meet is called “price equilibrium.” There is a balance between supply and demand and the price goods and services. When someone corners the market on an item that is a staple of everyday life, like gasoline, the consumer is in trouble. The supplier has a monopoly. We are forced to pay whatever price the controlling entity sets for the good. That is where we are right now on fuel prices.
When this situation has occurred in the past, it has predominately been a domestic issue. The railroads had that situation in the late 19th century and the government stepped in to change the things in favor of the average citizen. In more recent times, the government stepped in to split the company into smaller entities, with a more regional focus.
The current fuel crisis is not going to be so easy to solve. We need cooperation from countries that hate us just because we exist. (Speaking of which, whoever heard of a religion where you have to kill anyone not of the same faith?) The war in Iraq is not making us any friends. Its end may be a good place to start working on the fuel crisis. It would certainly be a good place to start.
Another option is to develop other sources of energy, moving us away from our oil dependence. We should follow Brazil’s lead and move toward ethanol as our primary energy source. As a nation we should be ashamed that we haven’t already done so. We don’t have to re-invent the wheel. Use the same models and strategies they used when they started their program.
Lastly, and most importantly, what if you are a single parent and you have to decide between $4 gasoline to get to work or food that night for your children. How would you decide?