Higher Gasoline Prices: Future Options

“Higher Gasoline Prices: Temporary or Time to Buy a Hybrid?” takes a look at gasoline and its effects on consumers, producers and the economy as a whole. The newsletter presents both sides of the ever-increasing option for individual drivers, commercial businesses and energy enthusiasts in general. This document was published in September of 2012 and it is now October of 2013. In taking a year of time to evaluate the increasing cost of gas prices, it is obvious that these prices, at least in the short term, are not temporary hikes. Rather, they are a trend, and that trend is continuing to go up.

The price of gas is at the forefront of most American’s minds, yet visiting the pump is one of the last things Americans want to do. One thing that this review does well is explain a unique problem in the consumption of gasoline. Gasoline is inelastic in its demand, meaning that there is no alternative source of fuel, at least in terms of the basic commute for an individual going to work or for a fleet of semi-trucks delivering materials for their specific business. As stated, “The fact that people still need to commute to work or travel to other places and that there is no readily available alternative energy source for gasoline makes it difficult to reduce the quantity demanded…even when gas prices are high.” In short, the only available option for consumers of gasoline is to bear it, make cuts where possible, but still accept the inevitable fact of being tied to gasoline.

It is important to note, however, that there is a point at which Americans do start consuming less when prices increase to an extreme amount. In the Gasoline Demand Versus Gasoline Prices chart in the newsletter, there is a noticeable drop in consumption from about 9,000 barrels per day to about 8,750 barrels per day when gasoline prices hit $3.50 per gallon.

This statistic suggests that although gasoline is inelastic, it cannot be increased indefinitely without eventual consumption decreases. However, this review also hints at the possibility of alternative energy sources, namely hybrid vehicles. There are many considerations an individual or a business must take when looking at switching partially or fully to a hybrid automobile. A very good point made in the newsletter is the amount of time gas prices remain high, “…if consumers or firms expect the increases to be temporary, they may not have any incentive to change their investment decisions or lifestyle choices” ("Higher gasoline prices: Temporary or time to buy a hybrid," 2012). This is a very telling argument from a purely short-term financial perspective, but what about the sustainability of the environment and what about the long-term savings of a hybrid for an individual or hybrids for businesses? As it turns out, the analysis of whether to buy or not buy a hybrid car is quite extensive.

An article published by Newsweek in 2008, attempts to answer this question. Back in September of 2008, gas prices were threatening to touch $4 per gallon. Currently, in the year 2013, gas prices are well above $3 per gallon for the national average. This five-year statistic of gas prices shows again that the trend is slight decreases followed by substantial increases. At the very least, gas prices fluctuate down, but have, in the recent past, gone back up again. From a purely financial perspective this article makes sense, “…the combination of getting a low price when you trade or sell your existing car and the extra amount you’ll pay for a hybrid means it’s probably more cost-effective to keep the heap for a while longer.” Therefore, if a consumer takes this and applies it to the mindset that gas prices continue to fluctuate at a rate that is not extreme enough to warrant change, hybrids lose their appeal. However, the short-term financial costs are only one facet of a very complicated problem.

In looking at the environment and the long-term savings in finances hybrids are a great choice. Several hybrid cars carry the perk of giving their owners discounts on insurance premiums, acquiring federal tax credits and, simply, making the trip to the gas station more bearable (Stern, 2008, p. 66). In addition to discounted insurance and federal tax credits, hybrids start to pay themselves back the extra cost when gas reaches $3 per gallon (Anderson, 2010, p. 70). When this newsletter was written, gas was just under $3.50 per gallon. Currently, the national average for gasoline is just under $3.40 per gallon. 10 cents is a very small change over the course of a year and an average price of $3.40 per gallon is still high enough to make hybrid cars attractive.

As this newsletter points out, it isn’t just individuals who are interested in the use of hybrid or fully electric cars to combat the increasing cost of gasoline. FedEx, a leading shipping company, has plans to, “cut its fuel consumption by 20 percent by 2020 by adding more hybrid vehicles to its fleet” ("Higher gasoline prices: Temporary or time to buy a hybrid," 2012). This should make an individual driver wonder about the potential savings they could incur should they decide to make the switch.

This newsletter accurately and fairly represents the current plan of energy with gasoline and seeks to inform and make the reader aware of the availability of other forms of energy. Through statistical charts, economics and an understanding of short-term versus long-term consequences “Higher Gas Prices: Temporary or Time to Buy a Hybrid” does a great job of illustrating the avenues of excessive dependence versus limited dependence on gasoline.

References

Anderson, J. (2010, July). The price of saving fuel. Retrieved October 16, 2013, from http://www.ebscohost.com/academic/academic-search-premier

Higher gasoline prices: Temporary or time to buy a hybrid. (2012, September). Page One Economic Newsletter. Retrieved October 16, 2013, from http://research.stlouisfed.org/pageone-economics/uploads/newsletter/2012/PageOneClassrmEdition0912_HigherGasolinePrices.pdf

Stern, L. (2008, September 29). When to go hybrid. Retrieved October 16, 2013, from http://www.ebscohost.com/academic/academic-search-premier