The Numbers. Why Gas Feels Cheap : and Why It's Not, Historically Speaking
by: Jo Craven McGinty
Jan 13, 2015
Click here to view the full article on WSJ.com
TOPICS: Consumption, Oil Markets, Supply and Demand
SUMMARY: The Numbers: Gas prices are now more than a dollar below the 2014 average, a level that is cheap relative to a recent run of record highs but not yet near the 17-year stretch from 1986-2003. The column reports not only on the historical prices of gasoline, but also on consumer responses to lower gasoline prices, the effect of lower prices on the U.S. economy, automobile purchases, and decisions about hydraulic fracturing. Related article: The downturn in energy prices has triggered debate over whether Texas simply got lucky in recent years or whether it hit on an economic playbook that other states could emulate.
CLASSROOM APPLICATION: Students can evaluate the consumer response to lower gas prices. The Numbers column reports that the typical consumer will spend about $600 less per year on gasoline with a $1 per gallon decrease in its price. "Spending less at the pump means having more money for other goods and services." With regard to automobile purchases in particular, consumers response very quickly to changes in gasoline prices in terms of the types of automobiles they purchase. With lower gasoline prices, consumers will rush back to larger, low-mileage vehicles.
QUESTIONS:
1. (Advanced) What is the effect of a decrease in the price of gasoline on the value of imported goods and services in the U.S.?
2. (Advanced) What is the effect of a decrease in the price of gasoline on the size and fuel efficiency of automobiles purchased?
3. (Introductory) What are the possible effects of the decline in oil prices on the Texas economy?
by: Jo Craven McGinty
Jan 13, 2015
Click here to view the full article on WSJ.com
TOPICS: Consumption, Oil Markets, Supply and Demand
SUMMARY: The Numbers: Gas prices are now more than a dollar below the 2014 average, a level that is cheap relative to a recent run of record highs but not yet near the 17-year stretch from 1986-2003. The column reports not only on the historical prices of gasoline, but also on consumer responses to lower gasoline prices, the effect of lower prices on the U.S. economy, automobile purchases, and decisions about hydraulic fracturing. Related article: The downturn in energy prices has triggered debate over whether Texas simply got lucky in recent years or whether it hit on an economic playbook that other states could emulate.
CLASSROOM APPLICATION: Students can evaluate the consumer response to lower gas prices. The Numbers column reports that the typical consumer will spend about $600 less per year on gasoline with a $1 per gallon decrease in its price. "Spending less at the pump means having more money for other goods and services." With regard to automobile purchases in particular, consumers response very quickly to changes in gasoline prices in terms of the types of automobiles they purchase. With lower gasoline prices, consumers will rush back to larger, low-mileage vehicles.
QUESTIONS:
1. (Advanced) What is the effect of a decrease in the price of gasoline on the value of imported goods and services in the U.S.?
2. (Advanced) What is the effect of a decrease in the price of gasoline on the size and fuel efficiency of automobiles purchased?
3. (Introductory) What are the possible effects of the decline in oil prices on the Texas economy?
Reviewed By: James Dearden, Lehigh University
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