The cost of rising gas prices - Essay Example

“Chris Christopher, an economist at IHS, figures that for every $0.24 increase in the price of gasoline, employment is lower by 410,000”(Stiphen Gandal 2011). This unemployment that occurs due to rising gas prices affects the entire economy. It results in lower standard of living of those who lose their jobs and poverty prevails. The government also pays the price because its spending rises as unemployment befits have to be given to more people. Due to industrialization in the last century, every other commodity is produced by using machinery.

Agricultural products, minerals, or manufactured goods, all the production processes use fuel at some stage. For instance, minerals are extracted using heavy machinery that consumes gas as fuel and crops have to be transported to retailers from farmers. Since gas is an essential component o cost o production, it pushes up the price o commodities. Study shows that due to rise in gasoline prices , the cost of production of consumer goods increased by 0.8% in April 2011 and a rise in consumer price index of 0.

5% in both February and March 2011. A comparison of prices in January 2010 and January 2011 showed how rise in gas prices resulted in huge rises in prices of other commodities. This comparison showed that corn prices increased by 58%, rubber prices increased by 78%, Aluminum by 9%, cotton by 131% and wheat by 37%. These are only a few commodities but the impact was not restricted to these only.(Micheal Kopoly, 2011) The entire cost o production increase due to rise in gas prices is not transferred to consumers only but in many cases it results in lower profit margins of firms and job cuts to compensate the costs.

Hence it is the entire community that incurs the costs. Increased gas prices have altered spending and saving patterns. 21% of the households have reduced spending to great extent by buying economy sized packs o groceries and buying cheap brands. A large number of consumers are using loyalty cards and other promotional services offered by retailers to save money. Increased gas prices increase cost o living. Individuals have less money available to spend on vacations and leisure activities. According to Danita Blackwood , “The number of Americans making plans to take a vacation over the next six months has fallen to a 30-year low according to a leading business membership and research organization, The Conference Board.

” (Doug Caverly, 2008). This means that the businesses that rely on tourists suffer a lot for instance resorts, museums, theme parks and so forth. 21% of the households say that they have reduced eating out. This means that restaurants and hotels have faced a decline in their profits.(Micheal Kopoly, 2011) Five out of six US recessions witnessed after 1970 were linked with rising fuel prices.(Berk, 2011) . High gas prices lead to higher cost of production, reduced profits and a decline in aggregate demand.

Though the immediate response to the question of the effects of rise in gas prices would be the above mentioned, a few opposing views may also be found. A few businesses still benefit despite the increase in gas prices. These businesses are those which produce goods that have an inelastic demand. When cost of goods increases, the cost is transferred to the consumer and the businesses maintain the profit margins. Information technology industry is still flourishing despite the energy crises. When meetings have become more costly due to increased driving