I won't start with a witty one liner such as "seen the gas pump lately?". We all know that gas has gone through the roof in the United States. Honestly, Europe is looking at us right now, scoffing at our cheapness (gasoline is $8 a gallon in Europe).
Inelastic demand means that a particular demand is less subject to change. In english, everybody needs an inelastic demand. To operate your home, car, or machinery, you need oil. Oil companies know you need gasoline. Gasoline is an inelastic demand.
Say that the demand from United States is represented as "500". At a certain demand, oil companies make a profit. It is supply and demand that will dictate the price of oil, and certainly, the value of the US dollar has a lot to do with it, too. Insert China: 2000, and India: 2000. These two countries alone have increased demand, raising prices on everybody. China and India aren't getting the "benefit" of cheap oil. They are paying for it, too.
Oil companies may say they have lower profit margins, but look how much product they are selling- TONS of oil. Their record profits stem from the thirsty demand of a little less than half the world's population, as they transition into more robust economies and industries. I am not here to point fingers at the consumers, or the oil companies. Can the oil companies afford to lower their profit margins? probably. But as the low hanging fruit begins to get scarce, companies need to dig farther down for oil, which costs more money. When you are moving that much product, it can get costly. SHOULD oil companies share their profits? It is kind of like the current tax system in the United States- I disagree with it, and lawmakers telling oil companies to "pay their fare share" and "setting" prices is tantamount to state control; socialism.
Everyone is hurting, and everyone feels bad about it, for sure. I don't think oil execs are in their back rooms counting the dough, either. At the same time, America needs to become more frugal and smarter with their oil consumption. It is time to stop being wasteful, and start being mindful. Do you know how much money can be saved if you use public transportation? If you are intelligent enough to do the math, find out how much you save. There is a fix to this problem; and the lack of progress makes me raise an eyebrow: electric charging stations.
When gasoline has competitors, it will weaken its grip as an inelastic demand. What if I told you that you can drive for $1.50 a gallon on electric power? And get over 300 miles to the tank? Look into the Chevrolet Volt. The answer to America's high gas prices is to stop paying so much for it. What do you mean by that? I mean start looking at cost saving alternatives. I recognize that there aren't many charge stations out there, and I raise an eyebrow at the oil companies for not investing in that technology (obviously, so they can keep their oil profits). If I need to drive farther out than my tank will let me (now a battery), I will rent a car.
This nation, which was built on cheap oil after the 1900s, needs to face the facts. We will always need oil, and taking our cars off of it will significantly reduce the costs on other oil products- such as home heating. It will clean our environment. It will allow us to spit clean stuff out of our exhaust pipes. If you can break with the norm of gas vehicles, seek out electric vehicles. I am VERY excited about the future of electrics and hybrids for the next 10 years.
There are naysayers out there: both cautiously skeptical and those that are misinformed. I would like to own an electric vehicle in the next 5-7 years. We need to focus on public transportation efficiency (high speed rail) and fuel efficiency. It is the only way to cut down our consumption, and the costs we take with it.
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