26 Jul HOW RESPONSIVE DO YOU THINK CONSUMERS WILL BE TO THE PRICE CHANGE WHEN THESE FLUCTUATIONS OCCUR DUE TO CHANGES IN SUPPLY?
When gas prices rise people arent generally happy about it. When they fall people ar Show more For example: When gas prices rise people arent generally happy about it. When they fall people are stoked and start planning trips to the beach or begin to imagine what I road trip across the country could be like. People like to think that because commuting to work or school or to the store has to be done and that you need gas for these things that it doesnt matter if the prices rises or falls because demand will still be the same. However according to Microeconomics by Hubbard and OBrien in the beginning of chapter six theyve stated that when gas prices rose from an average of $3.66 per gallon in September of 2011 to $3.91 per gallon the following year consumers drove %5 less. You can deduce from this that even though people believe demand is steady and even rising they do have a slight influence on how much they purchase overall. The same can be said for when supply of gasoline is either high or low demand becomes inelastic (meaning the absolute value of the percentage change between price and demand is less than 1). However because gasoline doesnt have any viable substitutes consumers dont have much of a choice when gas prices rise. They still need to buy it. When the government taxes sales on gasoline theyre using that money that theyve collected in order to fix a negative externality such as pollution and global warming. A negative externality is a cost that is payed by people not involved in the buying and selling of something (gas in this case). So if there is a child with asthma who cant drive yet they suffer the consequences of polluted air even though they had no part in the production or consumption of gasoline. The price elasticity of demand for gas is affected by these taxes because it raises the price therefore reducing demand even though it may not seem that way to the average person. Again that person still has to go to work go to school go to the store and theyll pay for gas regardless of the price in order to do those things. However as weve seen earlier people do have a small influence on how much gas is purchased. For example road trips are postponed people dont travel as often others may take the bus or even carpool. The government has to be careful though because even though they can put massive taxes on gasoline and aim those funds towards the greater good it has an economic affect on decisions made by everybody in the country. Too much of a tax will have too great of a rise in price and demand will drastically drop as people go to drastic measures to not drive. However the opposite can be said if the price is lower. The producers have the daily challenge of finding and maintaining that equilibrium point. Gas prices fluctuate often and in both directions. respond to the following: How responsive do you think consumers will be to the price change when these fluctuations occur due to changes in supply? Why? Use the various determinants of elasticity to explain your answer. How does the price elasticity of demand for gasoline impact the effectiveness of taxes on gasoline aimed at correcting a negative externality? Consider incorporating the supply-and-demand model to demonstrate the elasticity of demand for gas and to show the effects of tax on the market for gas. Show less
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