A solution to gas prices?

Great Debates
21

Because of above mentioned “Maybe it’ll be cheaper down the road”. People don’t shop around for gas that much. It’s rarelly worth the gas used. However if the price is known before they get gas they will be way more likely to go to the cheaper place. Having your gas even a penny more then the compition will be an easy way not to sell any.
Suppliers will also feel this. If the stations they supply don’t sell as much gas the stations won’t buy as much gas. This might encourage the construction of new North American oil refineries which would lower fuel costs. It’s not all OPEC causing the high fuel costs. Funny what giving people a little fore knowledge can do.

iamme99 That site was nice but it did not have any prices in my area or anwhere near it really. Also it would fairly hard to get the majority to use it (which would be needed to lower costs). Where as griping about fuel costs when passing gas stations seems to come naturaly to most people. If they know it was going to go up that would really set them off. People remember what made them grip. I think it’s because they find gripping so enjoyable.

22

Well, I think the problem here is that the demand curve is pretty inelastic, at least over the short term…i.e., it takes a pretty large price hike to produce a given decrease in demand. Part of the reason why this is the case is that you are stuck with the vehicle you own so that you can’t rapidly switch to a more fuel-efficient vehicle when prices rise. Another part of it is that even though people whine about gas prices, they don’t seem willing to alter their behavior very much…e.g., switch to public transportation, carpool, plan their trips more carefully, walk or bicycle when possible, etc.

Personally, I am inclined to agree more with the free-marketers, Sam and John, here. The real problem in fact is not that gas prices are too high now but that they were way too low before and are still too low. This is evidenced by the fact that people do not seem to give very much consideration to fuel efficiency in purchasing vehicles, instead buying larger vehicles than they objectively need valuing power over efficiency, etc. We should be like the Europeans, recognize the fact that there are a lot of externalized costs associated with gasoline use (see this Sierra Club site for estimates and sources of those estimates), and tax the hell out of it (although such a tax should be phased in gradually so it can be adjusted to). Or, alternatively, we should implement much tighter CAFE standards or large taxes on gas-guzzling vehicles. (Unfortunately, we currently have a generous tax break for people who purchase the largest, most gas-guzzling SUVs and use it for business, a tax break far more generous than anything we have on hybrid vehicles, for example.)

If you want lower gas prices, the best thing to do is prove to the oil companies that you respond to higher prices by lowering your demand! And, make your next vehicle purchase a hybrid.

23

Here Here!

The solution to high gas prices is higher gas prices! Raise it high enough that hybrids actually pay to own within two or three years (as long as many new car buyers hang on to one car) and high enough that other alternative transportation options begin to look more attractive, and eventually prices will come back down some. (I’d put my vote for raising gas taxes too, but I don’t have to run for office - hard to do from the rail I’d be run out of town on!)

24

Has anybody thought about this…

What if the price of gas goes down right before the Presidential election…And Bush takes credit for it. Could have been planned all along…
I know nothing about politics… So maybe I am reaching here.

25

No reach. No cite handy (maybe later) but there was word that Bush had in fact arranged with the Saudis for just that to occur.

26

Because, I’m an American, and god gave me the right to drive the H2!!! To hell with all you limp-wristed, Petalluchi oil smelling, tree huggin’, bike ridin, dirty environmental hippies! Why should I have to pay for the results of my own behavior or actions? That doesn’t sound very American to me, ya’ commies.

27

It’s also important to remember that even at 2 bucks a gallon, gas is still damned cheap in constant dollars. And also compared to other commodities. I drive a vehicle that gets about 20 MPG. My job is 10 miles away. So I can drive to work and back for two bucks. That’s competitive with the bus, it’s 1/3 less than I pay to park the vehicle when I get to work. The 40 bucks a month I pay for gas to get myself to work and back is less than I pay for my cable TV. So in absolute terms, gas is still pretty cheap compared to the value it gives us.

This may be why the demand for gas is in the inelastic range - it’s just so cheap that it’s not a limiter of behaviour. Other factors limit the amount we drive and the type of vehicles we drive more so than the price of gas.

That will change as gas gets more expensive (and it will, eventually, even if it comes down again in the short and medium term). When gas is $4/gallon and it costs $100 to fill up a car, you’ll see some major changes in behaviour.

For example, at $2 per gallon, at an average driven of 15,000 miles per year, a car that gets 15 miles per gallon will burn up $2,000 a year in gas - less than $200 per month. Going to a tiny vehicle that gets 30mpg, only saves you $1,000 per year.

Now, think of all the people who could drive vehicles worth $10,000, like a Sunfire, but instead choose to buy a $40,000 SUV. For them, an extra $1,000 per year just isn’t a big factor in their choice - hence the long-term inelasticity of oil prices.

The same goes for hybrids. Hybrids typically cost maybe $4,000 more than a non-hybrid equivalent. And they require a battery overhaul every 5-10 years costing $5,000 or more. From a pure economic sense, spending all that extra money to save $1,000 a year in fuel just isn’t worth it (it’s getting close, though). So today, hybrids are purchased by people who put more value on them than just the cost of gas - environmentalists, technophiles, etc. Classic early adopters.

But make gas $4 per gallon, and suddenly there are major savings to be had. THe guy who drives a 40 mpg hybrid instead of a 15 mpg non-hybrid is going to save $2,500 per year. THAT is definitely worth it. So long before gas gets that high, you’re going to see a mass migration to hybrids and other high-fuel economy vehicles. That in turn will eventually drive their price down, and make them even more desirable. It’s called the ‘tipping point’. Gas will get there, and demand will stop being inelastic.

The big problem today, however, is not SUVs. It’s China. China is becoming a HUGE consumer of resources. Currently 55% of all the world’s concrete is being consumed by China. Their increase in energy consumption is going up by double digits a year. The rise of China, more than anything else, is going to put a real strain on our resource infrastructure.

28

In my mind, the biggest problem today is not SUVs, nor China, but whiners who, as John Mace first indicated, seem to claim some bizarre right to gasoline at a price that is to their liking.

When I got my first car, back around 1988, I recall that I was paying about 40 cents per litre. Until recently, I was paying less than twice that. According to The Inflation Calculator, inflation can account for a 40% increase in price alone, to 2002. I’m not quite sure about the technicalities of interpreting oil price data, but the Department of Energy tells me in this Excel spreadsheet that the price of oil on January 6, 1989 was $13.41/bbl.

Now, I’m sure that if I spent enough time, I could figure out just how much oil goes into a litre of gas and determine whether a jump in the price of crude from $13 to $40 would reasonably result in the additional 60% increase in the price of gas, but I don’t really care that much. I’m reasonably satisfied that, while we’re paying more for gasoline than ever before, it does not differ substantially from bread, houses, automobiles, gum or ketchup, in that we’re probably paying more for those than ever before too. Anyone out there want to lobby against the price-gouging ketchup cartel?

29

I don’t think the battery issue is as bad as you make it sound. The warrantee on the Toyota Prius hybrid components is as follows:

(For the emissions warranty, they say, "Coverages vary under Federal and California regulations. ")

I also remember reading, although I can’t seem to find the cite now, that Toyota says the batteries have lasted 150,000 miles or more in bench lab testing. They also noted that while the replacing of the batteries is expensive at the moment (I believe their number was US$4000), the price is expected to drop fairly substantially over time due to economies-of-scale.

30

Okay. It looks like some improvements have already been made in the last couple of years. That’s great. It doesn’t change my basic point, but it sure moves the tipping point closer. If the operational cost of a hybrid is close to that of a gasoline powered car (but don’t forget we also have wear on the electric motors and all the additional electronics), then the ‘tipping point’ where higher gas prices will push people into hybrids en masse is even closer.

But gas in Canada is currently somewhere around $2.40-$3.00 a US gallon, I believe, and we still drive our big honkin’ SUVs. Although smaller cars such as the Toyota Echo do sell much better in Canada than in the U.S.

31

I realized this morning why the proposed legislation won’t work.

If it was Monday at gas cost 80cents/L and I knew on Wednesday it would go up to 99cents/L I’d make sure to have a full tank Tuesday night. As mentioned before, many of us recognize that there would be huge lineups at the pumps the day before an increase.

Now, if you were the companies, and you knew the price was going to drop, what’s to stop you from posting an increase, and then lowering the price the next day? If its Monday and gas costs 80cents/L and you know Thursday the price will drop below that, why not say prices will go up, let everyone rush to empty your tanks, take a slight loss on Wednesday, and then laugh on Thursday when the price goes down.

This would insure that they would be able to sell all of their expensive gas before the lower price came in.

32

More likely, the price of ‘cheap’ gas will just rise.

For instance, let’s say today that 1 day a week gas is $1 per gallon, and on the rest of the days it’s 75 cents a gallon. If people purchased gas at approximately the same rate through the week, your average price would be 78.5 cents.

Now, if the new law means that only half the gas will be purchased at $1/gallon because of the warning, then the average price of gas would only be 76.8 cents per gallon. As a result, I would expect to see an immediate increase in price on the ‘cheap’ days of at least 2 cents per gallon. And then you’ll be forced to fill up on cheap days to get the same average price of gas. Those who stick to their old buying habits will wind up paying more for gasoline with the new law than they would without it.

But you can envision a million scenarios for possible behavioural changes when the government fixes prices or otherwise distorts the market by fiat. It’s nearly impossible to predict all the ramifications, which is my primary argument for letting prices fluctuate with supply and demand rather than having central decision-making over prices (and this warning system does that, albeit in an indirect fashion).

33

Oh, I forgot another likely effect: Shortages of gas when it’s expensive. If the warning system means that gas suppliers know the demand will drop when the prices go up, they’ll order less gas at higher prices. After all, once the price drops again they are stuck selling high-cost gasoline at lower prices. So an obvious effect might be that companies purchase less gasoline at higher prices, leading to shortages and gas lines.

34

You call that “gouging”? Of course gas stations raise pump prices as soon as there is a shortage. The same market forces that make well head prices rise, also make retail prices rise. And at the same time.

35

Very true. And not only is $2/gallon comparable to the price of gasoline in 1949, but today’s car gets better gas mileage. This means that the cost per mile is cheaper than it’s ever been.

36

Just to be clear, I don’t care at all about the actual cost of gas, it could be 10cents/gallon, or it could be $10/gallon.

What bothers me is the random and extreme fluctuations, such that within one day the price WILL go from 10cents to 10bucks per gallon and then back down.

In general fluctuatons are something the government can work to reduce, so a more appropriate title to this thread would have been, “A solution to gas price fluctuations.”

37

And my suggestion would be that before you work to ‘fix’ fluctuating gas prices, you might want to check to see if those fluctuations serve a very valuable purpose.

Which they do.

38

Help me out a little, what purpose to the fluctuations serve?

As has been noted already, consumer demand really doesn’t change. There may be a handful of weekends where more people might drive, but the current fluctuations teach us that the price is not affecting the demand.

So then is the price changing with the supply? If so, which part of the supply? Are you telling me that the speed with which the gas is pumped in Kewait determines the price down the street? OPEC has complained in the past that the problem is the lack of NA refineries, which they say are at full capacity and could not handle an increase in supply.

Even if that’s the case, why is gas the only commodity that fluctuates throughout the day. Take your pick, pop (soda), bread, batteries, etc. I can accept that the supply changes throughout the month, maybe even through out the week, but daily? Hourly?

39

Rises in gasoline prices are directly proportional to the current world inventory of oil and gas. Sometimes large surges in demand drive inventories down, and producers respond by raising prices. This price is passed on to the consumer. This is beneficial because it helps limit demand on a temporarily low supply, helping to avoid shortages.

The reason oil fluctuates when things like bread don’t is because oil is a fungible commodity. When you pour gas in your tank, it’s irrelevant whether it came from Canada or Saudi Arabia, or whether it was pumped yesterday or five years ago. You see the same pattern in other sources of energy, such as electric power.

Complicating the issue is an increasing morass of regulations and different gas formulations to meet them all. California gas is different than Ohio gas, because California’s government demands it. So now you have less refinery reserve in each sub-category, which causes increased price instability.

Allowing rapid price movements allows oil to flow to where and when it is most needed. It is efficient. If prices were not allowed to float, you’d see all kinds of coping behaviours, like gas hoarding, over-use of resources when reserves are low, shortages, etc.

In this particular case, a one-day warning is a small change, but the market will have to compensate for it. My guess is that it would do so by raising the average price.