Utility Derived Course Work Example

Utility Derived Course Work Example

The demand for gasoline in America fell drastically in 2012. This was primarily attributable to the increased gasoline prices to $4 a gallon. The consumers cut down their consumption by opting to minimize number of kilometer driven per day, opting to use non guzzler vehicles and making use of pooling programs which enables them to share cost of gasoline in their journey’s. This decreased demand for gasoline by 4% an adequate quantity which adequate to justify that demand for gasoline is price elastic.

The consumption of gasoline declined sharply in America in 2012. This is attributable to American motorist’s decision to change their gas-guzzling ways. Several people opted to reduce the number of kilometers they drive per day while others have opted to replace their fuel guzzlers with fuel friendly vehicles. In addition, application for car pooling programs which enables people to share rides has increased sharply. The program made it possible for people to maintain their transport efficiency as they minimize their gasoline bills on daily basis (Mufson, 2012).

The consumer decision to tame their gasoline consumption has been attributed to increased gasoline prices. The gasoline prices topped $4 per gallon. The high prices prompted drives to trim their gasoline consumptions to its lowest level in a decade. In fact, the gasoline use averaged 8.6 million barrels per day this was four percent drop in comparison to what was supplied the previous year. (Mufson, 2012).

Despite the sharp decline in consumption when prices hit $4, it seems consumers gradually got used to paying more for same amount of gasoline. This mental adjustment prompted them to adjust their budgets to accommodate the increasing gasoline prices over time. Their willingness to increase their gasoline budget over time was also attributed to improving income levels as the economy had started recovering from recession. It seems that as the consumer income increased they are willing to increase their gasoline budget (Mufson, 2012).

The consumer gets satisfaction (utility) after using gasoline to reach his or her destination in the most comfortable way and within the shortest time possible (Pirog 2008). Therefore, consumer may prefer to pay more for gasoline to use non fuel friendly vehicle if he considers deriving it to be more comfortable than fuel friendly car. It seems that consumers are more satisfied upon purchasing gasoline and travelling alone because they only agreed to travel along other people in the pooling program when gasoline prices reached $4per gallon.

Causes of changes in demand for gasoline and its equilibrium price

The demand for gasoline was altered by increased price. It is worth noting that the change of price of a commodity leads to movement along demand curve and these changes the equilibrium position. In addition, the tendency of some people to change their preferences on use of fuel guzzler vehicles leads to shift in demand curve to the left. This is because the high demand for gasoline is derived from high demand for guzzler vehicles. Therefore, this shift of demand curve to the left is the one attributable to the small decline in gasoline prices.

Causes of change in supply of gasoline

The supply for gasoline increased due to increased prices. This is because increase in supply leads to movement along supply curve. Therefore, if demand curve does not change increase in prices will result to a new equilibrium which reflects the increased price.

Elasticity of demand for gasoline

The demand for gasoline is price elastic. This is because its demand decreases upon increase in price. In the article it is clearly stated that when price of gasoline increased to $4 pe gallon the demand for gasoline decreased by 4%. The consumers’ decreased demand was solely attributable to increased prices only (Mufson, 2012).

Conclusion

Increase in gasoline prices in 2012 led to decreased demand of gasoline. The price increased to $4per gallon and the amount of gasoline demanded fell by 4%. This shows that demand for gasoline is price elastic. Consumers decreased their consumption was attributed to decreased the number of kilometers driven as well as opting to drive vehicles which use less fuel. The writer notes that the demand increased slightly thereafter because consumers got used to paying high prices and the economy recovered from recession offering them increased income. However, the demand never increased to the previous level.

References

Mufson, S. (2012). $4 gas reinforces trend toward lower U.S. fuel consumption – Washington Post. Featured Articles From The Washington Post. Retrieved March 29, 2013, from http://articles.washingtonpost.com/2012-04-17/business/35453836_1_gasoline-prices-oil-prices-higher-gas-price
Pirog, R. (2008). Gasoline and oil prices. Washington: Congressional Research Service.

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