Arizona Gas Market Equilibrium after 2003 Gas Pipeline Shutdown - Essay Example

During the summer of 2003, the main gas supply pipeline to Arizona state was shut down for a few weeks due to severe damage. During this time the supply of gas dropped considerably as suppliers were battling to meet the demand. Gas is used for public and private transport, delivering of goods, and generation of power in this state. The scarcity of gas caused consumers to panic and gas prices started to rise. According to www.ArizonaGasPrices.com the average gas price for 2003 before the incident was $1.40 a gallon, increasing to almost $1.90 within days.

From graph 1 it is obvious that from 26 July there was a spike in gas prices, assuming this was the period the pipeline was down, there was a clear shift in the market equilibrium. The ability of suppliers to supply gas has been drastically reduced resulting in a shift in the supply curve to the left as can be seen in graph 2 below. This resulted in the equilibrium point moving left from E1 to a new point E2 on the graph on the intersection point of the supply and demand curves. Another fact that can be derived from the above graph is that a small shift in the supply of gas will result in a larger shift in price. The reason for this is that gas is not a luxury but an essential product for most people and businesses, and this is indicated on the graph by a much steeper demand curve than normal, meaning the demand curve for gas is less elastic.

Even so, a price increase will result in a marginal decrease in demand as people restrict driving for essential reasons only, such as going to work to conserve gas. It would not have resulted in a shift of the demand curve as nothing was forcing an increase or decrease in the demand for gas, except the price increase. Additionally, the drop in gas supply and the resulting price increase would also have affected many other market contributors.