Crude Oil and Family Vacations - Article Example

Crude Oil and Family Vacations The impact of rising fuel prices on the American economy is subtle yet surely there as an increase in the cost of production has translated to an increase in inflationary pressures on the economic system. In economic terms, Ghoshal (1981) says that, “Economic theory postulates that as the price of a commodity rises, the quantity demanded goes down, provided that other things are held constant (Ghoshal, 1981, Pg. 93)”. Oil is one such good where the increase in prices has forced people to economize how they use it but for the most part, an equal increase in price has not resulted in an equal decrease in demand. While the connection between demand for a good and the price of the same good can be explained as a direct relation, as noted by Cooper (2003) and Hogg (2007), it may not be so when it comes to gas prices. Despite rising prices; there is little evidence of the demand going down. Many homes in America have experienced the shock of higher fuel prices and may have reduced their travelling by cars but the overall effect on consumption seems negligible. The reason for such behavior has more to do with our social setup rather than economics alone since Americans in general take cars to be the main method for the satisfaction of their transportation needs. An automobile could be taken as a basic necessity by many Americans as much as heating might be seen as a necessity. Additionally, in economic terms, there are few if any substitutes for automobiles in general and gasoline in particular. While alternatives such as Diesel fuel or alternative fuels may exist, they are not common enough to be seen a viable option to use if gas prices go up. In the future there may be options such as electric cars or even solar powered automobiles but today there is no real option but to use gas. Further, the options available today such as hybrid cars or even all electric cars may be disadvantaged when compared to cars running on gasoline based on their practicality and even their affordability. The data available on the demand of gasoline shows us that Americans are willing to pay a lot for the convenience of having their own cars rather than use public transport as an alternative. Our civilization depends on oil and without it, it would be difficult to imagine our world continuing to function as it has in the past (Cooper, 2003). The rise in gas prices is actually quite similar to the sudden rise which happened in the 1970s. However, when the prices increased in the 70s, there was an almost immediate drop in consumption as well (Krauss, 2007). The situation today is very different and even increased prices have had little on America. As described by Krauss (2007, Pg. 1), “As Americans enter the sixth year of rising gasoline prices, their shift in driving habits this time has been much less extensive”. In fact, consumption has actually gone up even through prices have been rising steadily. Crabtree (2007) gives a more scientific analysis of the situation and describes that in the past, each time gas rates were raised by twenty percent from 1975 to 1980, the American consumer reduced his/her consumption of oil by six percent. However, in recent years from 2001 to 2006, the level of reduction in terms of consumption was only one percent. Crabtree further (2007) quotes Dr. Christopher Knittel, an economist at the University of California who reports that, “Our preferences have changed over the years, and we are much more willing to continue our driving habits in the face of price increases (Crabtree, 2007, Pg. 1).” It seems that the price of gas still has some room to grow before Americans take on any drastic steps to reduce their consumption of the material. In fact, the price of gas may not have reached a point where it becomes a problem. Crabtree (2007) tells us what the people are thinking when he writes: “‘I dont think about gas prices at all,’ said Michael Machat, 48, a lawyer in West Los Angeles, where gasoline prices are among the highest in the country. As he filled up his BMW with super unleaded at $3.39 a gallon this week, he added, ‘I guess maybe if it was $10 a gallon, Id think about it’. (Crabtree, 2007, Pg. 1)”. Of course there has been an impact on the overall economic system of the country since increased gas prices have only meant that the cost of production of various goods and services has increased. However, this is seen as inflationary pressure and not something which can lead the American public to change their habits. If nothing else, it certainly goes to show that the American people and the American system of life if quite dependent and even addicted to oil which gives them the freedom they want. The economic impact is perhaps so slight that it is not being noticed except by those who keep a very close watch on the economy. Sales of Sports Utility Vehicles for example, had their highest point in 2002 and have been falling ever since. On the other hand, demand for hybrid vehicles and smaller, more fuel efficient cars has been on the rise. In 2006 for example, the sales of small cars rose by 5.3 percent but that could also be seen as a sign of an economy in recession (Krauss, 2007)”. In conclusion, it is easy to say that Gasoline is the blood for our way of life and even though it may not be very important for everyone in America, it is very difficult for those who have gotten used to it to give it up. The numerical evidence given by researchers shows that in spite of rising fuel rates, the consumption levels have not gone down. Therefore, it becomes easy to say that the vacation plans as well as other plans of many families in America will not be largely affected due to a rise in fuel costs. Works Cited Cooper, J. 2003, ‘Price elasticity of demand for crude oil: estimates for 23 countries’, OPEC Review: Energy Economics & Related Issues, vol. 27, no. 1, pp. 1-8. Crabtree, P. 2007, ‘Pump prices not fueling change in driving habits’, Sign on San Diego, [Online] Available at: http://www.signonsandiego.com/news/business/20070331-9999-1b31gas.html Ghoshal, A. 1981, ‘Price Elasticity of Demand for Air Passenger Service’, Transportation Journal, vol. 20, no. 4, pp. 93-96. Hogg, S. 2007, ‘High fuel prices arent discouraging eager drivers’, Christian Science Monitor, vol. 99, no. 140, pp. 8. Krauss, C. 2007, ‘Drivers Shrug as Gasoline Prices Soar’, New York Times, [Online] Available at: http://www.nytimes.com/2007/03/30/business/30gas.html Read More