Thursday, December 18, 2014

Brad Wahlgren

Brad Wahlgren
AP Economics
Mrs. Straub
17 December 2014
Falling Gas Prices: Good or Bad?
The average consumer purchases based on self-interest. One of the ways that people always try to save money is by purchasing gas for their car from the station that offers the lowest prices, and oftentimes one can observe competing gas stations on opposite sides of an intersection, each trying to outdo the other. Currently, oil is below fifty six dollars per barrel and consumers are celebrating the subsequent low prices of gas. However, this current low equilibrium price of gas could be detrimental for the businesses and industries that sell or invest in these products.
            The reason for these low gas prices is related to the United States’ greater production of domestic oil and resultant decrease of imported oil. This means that oil prices will drop because a determinate of supply has shifted the supply curve to the right. Additionally, consumers drive less during winter so there is not as great of a demand for gas during this time of year. If prices continue to be so low, the loss of revenue could have a very damaging effect on companies and areas that are dependent on the oil industry.  Businesses will shut down if the variable costs of production exceed the revenue generated, and if prices persist, 500 rigs will be put to a halt in production. The production of oil is an expensive process with which companies are subject to governments fees and taxing when they drill on certain federal and tribal lands. Therefore, a substantial amount of revenue must be generated in order to cover these costs and sustain at least a normal profit.
Gas prices in the year 2014
This lowering of prices will have different economic effects on different parts of the country.  Last year, forty billion consumer dollars were spent on gas. According to chief oil analyst Tom Kloza, consumers will spend at least two billion dollars less this year on the same product. This means that there will be extra earnings that people will be able to spend on other parts of the economy. Therefore the difference in oil revenue will saturate other industries, and many consumers throughout the nation will enjoy an increase in spending power. However areas such as Wyoming and North Dakota could suffer greatly from the new oil prices, because the petroleum industry comprises a huge part of the local economy.  When oil rigs and companies affiliated with the industry must downsize or close down permanently, many workers find themselves without a job, and therefore must become thriftier with their income and will not spend it as freely as before. This in turn hurts local businesses who sell products to these local business. The domino effect of a failing oil industry resonates throughout the whole community.
While consumers around the country are quite pleased with the current low gas prices, it is not necessarily a beneficial situation for the whole country. Some areas will be revitalized by increased real incomes of consumers, while other areas will suffer from the less profitable oil industries.
Works Cited
            Burke, Kelly. "Falling Oil Prices Could Hurt US Producers, Fracking Industry." Fox News. FOX News Network, 16 Dec. 2014. Web. 17 Dec. 2014. <http://www.foxnews.com/politics/2014/12/16/could-falling-oil-prices-endanger-fracking/>.
Philips, Matthew. "Return of the $3 Gallon? U.S Gas Prices Are Falling Fast."Bloomberg Business Week. Bloomberg, 17 Sept. 2014. Web. 17 Dec. 2014. <http://www.businessweek.com/articles/2014-09-17/u-dot-s-dot-gas-price-falling-fast-time-for-the-return-of-the-3-gallon>.

46 comments:

  1. Brad, you picked a very interesting topic, because it applies to almost every adult in the United States in some way. The drop in oil prices, not only drops gas prices, but reduces the cost of oil heavy products such as plastic right in time for Christmas. It could be interesting to see how the shift in oil prices affects consumers spending on Christmas presents. Will they spend more because they have more money available, from the lower gas prices, and the goods are cheaper, or will the total amount of money spent fall because people are still buying as much as they normally would, but the cost is reduced. Either way it is a fascinating topic as it affects so many people not only in our national economy, but globally as well.

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  2. Brad, the gas prices are definitely not hurting us in this area, but as always, people are waiting for them to rise again, but when? I heard that these prices are here to stay for a while, and you provide an interesting view on the consequences of when the amount of domestic oil drops below production cost, which will lead to shutdowns and job loss in certain areas. The prices are definitely worth it now, but how could we make it last longer than predicted?

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  3. Hey brad,

    I think that this is a great topic to discuss but there was no visual evidence that showed where the money would lead. By this I mean there are no graphs representing how this is impacting our society. Personally I love the low gas prices because I can fill up more for less and the gas stations seem to always be full so I don't think that the weather has a lot to do with it. Unless of course you were speaking from the boat aspect then that would be a completely different story. That being said I still think that the world is having lower gas prices for a good reason.

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    1. I would have to agree with Tanner here. I feel that lower gas prices will help the economy. More individuals will be willing to pay for their gas more frequently -- or at least not be so disappointed when the final price of gas shows up on the meter. I would have loved to see some sort of graph or visual, but that's ok. It was a well written post that shared your (Brad's) side and view of the situation. :)

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  4. This is a very interesting topic. It's funny how we get so caught up with our personal spending that we don't always realize the impact low prices have on our economy as a whole. I know I hear a lot of complaints about high gas prices, but the fact of the matter is that these higher prices are what keep the oil industry moving, just like you said. This is probably true for other things as well. Maybe produce and farm goods? If the prices on eggs and milk went down, would that have an adverse affect on the economy and the agricultural business world? Just something to think about. Overall, you did a very nice job of concisely, yet effectively, stating the facts.

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  5. I found it interesting that you decided to talk about oil prices dropping as possibly being a bad thing. I agree that with the lower gas prices there will be less revenue although i don't completely agree with the statement that less people will be driving in the winter. Even if that is true there are still going to be the same number of people that decide to drive when winter is over and many of the southern states will not see a shift in the number of people driving since they do not experience the same driving conditions as the north. The market may take a hit in the winter months but that has to be expected as it most likely happens on a yearly basis.

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  6. A very good topic that contradicts a current topic. You can tell you thought through this as you easily explained how this fall in gas prices will hurt the economy, not help. How long do you think it will take for this drop in the economy to happen? When it does, do you think that it bounce back quickly? If you were able to include answers to these questions, your blog post would be even better.

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  7. People always have complained about gas and how expensive it is but now with the lower of prices everyone is thrilled. I agree that since gas prices have been recently lowered it will allow people to save more money and put it elsewhere into the economy. But lowering gas prices will hurt some states due to less money coming in. I think that lowering gas prices can help the economy because more money will be put into other places. But that it also can hurt states like North Dakota and Wyoming. I thought that this was a very interesting topic to write about.

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  9. You have a good theory going here Brad, gas prices have gotten lower lately and there aren't as many people at gas sations during this part of the year, but you also have to understand that gas is a valuable product and there is less of it everyday. This loss of a natural resource that so many re dependent on leads to an interesting effect, while people are driving less up North, more people are traveling for the holidays that seem to line up one right after the other during the coldder months, so people are constantly driving, flying, and buying. That means that the oil business may take a small hit, but the bigger problem is going to be when the resources run out and those town surrounding the oil business will have to find a new purpose.

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  10. It's definitely interesting to stop and think about this situation in these terms. For most, including myself, as long as the gas is cheap, I dont really care how or why it is that way. I was actually unaware of the recent domestic drilling that has pushed the prices down however I'm finding it hard to believe that these gas prices are putting these companies at such great risk. I feel as though the domestic drillingwould benefit them and now companies are able to sell oil at this price.

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  11. Are the areas that need an economic boost helped by the lower prices. And the areas that can survive a decrease in the local economy hurting? Or is it visa versa?

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  12. This is great that you touched on this topic, because it relates to almost everyone, and after reading it, it does related to everyone -- even if you don’t need to purchase gas. You did a really good job with relating it to the terms for this year, and even though it is a very popular economic topic currently, you make it understandable to the public about what is actually going on a how, and the outcome that it will bring. Overall, great job Brad!

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  13. Consumers and other businesses are the only ones who will benefit from this, since consumers will have more to spend on other businesses which gives more profit to the businesses.

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  14. Having to buy my own gas, I was very excited to know and see that these prices have substantially lowered. However, I never thought to think about other companies that are relying upon the gas prices to hep their businesses or corporations. With that being said, gas has decreased an extreme amount and continues to do so, in which I believe as you said that with this happening, many more companies are going to either one lose a lot of money or two shut down overall due to the low equilibrium prices. Overall, while it may benefit the consumer to have such low prices, other companies and corporations are seriously lacking in the power to expand or make more profits due to these lowered prices.

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  15. This post was a particularly exciting reading, for it impacts a great deal of people -- not only around here but everywhere on the globe – and because your writing style is remarkable. These low gas prices are especially beneficial to owners of gas guzzlers like monster trucks and tanks, yet they hurt owners of companies like Exxon Mobil and Chevron. It is also interesting to see how gas prices will change in the next few decades, what with advancements in technology and quests for alternate fuel sources, such as natural gas and coal in lieu of oil. Wonderful piece of literature, Brad!

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  16. Brad, you made some interesting points in this piece. As a consumer, I can’t help but be happy about lower gas prices. I see where lowered prices might cause some companies to go out of business because they would be making less revenue, however, it may just be me, but I do not notice a difference in the amount of driving that I do in the winter versus any of the other times of year that is worth noting, nor in the amount of gas that I purchase. In fact, the lower gas prices might make people more inclined to drive. Additionally, due to the oil boom out west, North Dakota has experienced the greatest increase in GDP for the last two years. Although if this oil boom continues, in the future we might see the rapid falling of the economy as you had described with a constant surplus of oil.

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  17. It would be interesting to see the effects of this lowered price on the revenue generated from excise taxes on gasoline. Since these gasoline taxes are considered benefits-received taxes, they directly fund road construction and maintenance. If the government receives lower revenue from taxes because of lowered gas prices, I wonder how the condition of roadways will be affected.

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  18. These lowered gas prices are awesome, but I have noticed I am filling up my tank every couple days and I used to fill it up once a week. Gas companies dilute the gas so they make more money and we come back so fast because we think we are getting "good" gas prices.

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  19. This is a very interesting topic that has become very popular around the country! Gas has risen in demand because of the such "cheap" gas prices. Although, gas is mostly considered inelastic. We need gas and we are willing to pay what we need in order to get it. We can't just not have gas, it's a need and that's part of the reason it is so expensive. There are some cases however that it will become less inelastic if the prices skyrocketed. The total revenue also changes with these lower gas prices. Are people putting more gas in their car because it's so cheap? Or are they waiting until the last possible second like usual? This was very well written and it was interesting to learn about the effect of these gas prices.

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  20. I think it is very interesting topic that you have brought to our attention, Brad. I happen to think that the rising gas prices are good for the average consumer, but not those who have invested in stock. For the most part, the demand curve for gas is inelastic, and since gas prices are going down, people are driving more. Although this is making people happy, this is making stock investments less valuable. Really, we aren't saving any money in the long run due to the falling stocks and falling gas prices, so we should think twice before jumping for joy.

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  21. Gas prices are not sustainable at this level for very long because as you said as prices on gas and oil decrease the profits of the oil companies also decrease meaning they might have to close down. In the past year we have also become about half as dependent on external sources like Russia and the Middle East which might actually mean that the increase of domestic oil production has not hurt domestic companies whose oil prices have always been lower than foreign companies. So American companies might not have been hurt by this drop after all.

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  22. The Gas prices lowering in the United States is a great thing for us, but not for the countries who provide the US with the gasoline. It's nice for us, but it also affects the companies who provide us with the gas, because they don't make as much money. It just does not push more money into our economy.

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  23. I think that it's great that gas prices are finally lowering but I'm worried that it's lowering too much. Yes, about $2 billion will be circulated into the economy but to the normal consumer, they are only saving a dollar or two when filling up their tank. In turn, thousands of hard working people in the oil industries will lose their jobs. I like having to pay less to fill up but I don't think that not paying 30 cents more is worth thousands of workers losing their jobs.

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  24. Good choice of topic Brad. I say this because it pretty much applies to most high school teens. While everyone (consumers) rejoice at the lowering gas prices, they do present a problem for over-seas companies since we the US now produce more oil with the introduction of fracking and the Keystone Pipeline. So the companies overseas need to find either new oil reserves or lower the cost of their oil, which in turn would put them out of business. It is an interesting problem that may or may not need to be addressed.

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  25. The decrease in gas prices are very nice because I am spending less money on gas prices and I don't drive much so I don't use that much gas. However when I do need to fill up my car with gas I don't spend as much money as I used to. This is good because now I can save up more money for future investments.

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  26. I personally believe that the gas prices dropping is great, well for the consumer that is. The price is dropped for multiple reasons, the main one being the oil that has been discovered recently. More and more people are filling their tanks for more than a dollar cheaper per gallon. This is bad for the oil companies because they are losing a large amount of the profit they would normally make.

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  27. I think the decrease in gas prices dropping is only a positive. Based on that there was a new oil reserve found, and prices are going down, because of the demand. To the consumer it's great to have more money to spend on other necessities.

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  28. I think that it is awesome that gas prices are dropping. I don't pay for my own gas right now but I am hoping that by the time I do, prices will be even lower. It is interesting how it can hurt some states and help others. All in all I think that most of America would agree that we would love to see gas prices continue to fall.

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  29. The decrease in gas prices is a big change for our economy. But will this last a short term or a long term? Will the price of gas increase in the future to the prices we all remember? $4.00 per gallon of gas that we need to get around was outrageous. I',m 100% sure that no one today is complaining about the price of gas right now. Plus, it's still lowering. Will it reach below $1.00 per gallon? Gas is a huge industry and what you said in your post was completely right. Not everyone will benefit from these amazing gas prices. Places like North Dakota or Wyoming, has been impacted from this in a negative way.

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  30. Brad, you made good point throughout this piece. Falling gas prices may be good for us, but very bad for the companies related to the oil industry, of which there are many. However, the increased domestic production of oil is a good thing for the American economy and could finally pull us out of the lagging stages of the 2009 recession. Because there is more oil being produced in the U.S, our net imports will increase and therefore increase GDP, bringing the GDP growth rate closer to the trend rate than it has been in the past. Even though OPEC might suffer, the American economy will be stronger because, as we all know, prices will eventually start to climb back up.

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  31. Brad I can honestly say that this is literally the best economics blog post I have ever read. This topic that you chose really shows off your personality, and really reflects who you are as a person. But I think that lower gas prices is a great thing. I have been waiting for gas prices to lower for a long time so it's about time. But we should really be thanking Europe and Russia for these prices, because they are the ones who aren't demanding the gas as much. On the other side of the story though oil companies are losing money because of the price drop, which leads to a decrease in profits. But in my opinion it is a great thing that gas prices have dropped. Again, this was an amazing post Brad great work.

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  32. Obviously the decreasing gas prices are good news for the consumers, but I never really realized how much it could impact other parts of the economy. You brought up a great point about how now consumers will have more spending money to spend at other industries, rather than spending it all on gas. And this is something that many consumers will benefit from, with an increased spending power. But you also talked about how it will hurt states like Wyoming and North Dakota, because they are major produces in oil, and now their revenue will go down. So the decrease in gas prices definitely have their ups and downs, but from a consumers stand point, it's a great situation to be in!

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  33. I've really only thought about the lowering of gas prices from my point of view. Personally it benefits me, but now I can see that it may not be the best thing as a whole. I'm interested to see the effect of lowering the gas prices in the future, hopefully it doesn't turn out to be a big issue for our economy.

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  34. It is amazing the different roles and impacts that falling gas prices play on our economy. Also to see that last year forty billion consumer dollars were spent on gas is amazing and really shows that gas is an inelastic good. And that the lower gas prices are going to help our the consumers. Due to the fall in gas prices consumers will spend two billion dollars less in the coming year on gas. But this is not a plus for everyone because this is going to crush the oil industry because they are getting less money. The effects that gas plays on the economy is amazing.

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  35. I find this topic very interesting, and I think it’s nice that you discussed this issue from a different perspective, since as consumers, we’re happy about the lower gas prices. Because the preparation of oil is such a tedious and laborious task, from an economic standpoint, I think that the drop in prices will greatly affect the influence the GDP of the nation. Since we’re producing our own oil and there is a greater supply of it in the US, I would think that this would decrease the unemployment rate since more workers are needed to meet the demands of oil production. Obviously this is a topic that affects all of us since most of us drive, so overall this was an interesting post!

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  36. This is a very relevant and current issue in today's society. It's really amazing that you discussed this through multiple lenses providing the reader with varied views on each prospective. As a consumer of gas myself, I am extremely pleased that gas prices have fallen to their current levels, however, I am also concerned that this could be hurting our economy. Since the US has started to produce more oil through methods such as fracking, their is a greater supply in the US thus leading to our demise in need for foreign oil. Overall great article, love the effort!

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  37. Brad, this is a good topic to bring up in economics as the prices seem to be getting lower. I don't think a lot of people chose to walk more than drive necessarily when the prices became higher, and I don't think this will be the case again if the price suddenly increases again. Gas for our vehicles is a necessity, and with the price drop, oil companies are getting worries about the cost of production and jobs. So will there ever be a happy middle in this? I don't know, but overall good job!

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  38. Gas prices dropping is defiantly a positive event going on in the United States today. I am very curious to see just how far they will drop and I am also wondering when will they start to rise again. I wonder why the United States didn't start drilling for more oil sooner because it is making almost all the drivers happy. Very good topic and I can't wait to see what happens next. Great blog post Brad. Make sure to keep up the good work.

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  39. As a consumer I am obviously hugely in favor of these new gas prices, I spend probably about $10 less at the pump than I have in past years. However, I can see how this would be detrimental to countries in the middle east that are only exporting a single good, oil. Another country that has suffered greatly would be Russia, 50% of their exports and revenue come from oil; because of this they are currently in a recession period with little hope of getting out of it. Our country on the other hand is thriving because of this, we are now the number one oil producer in the world which means that we now have another good to sell to countries as well as lower prices for U.S. citizens. Overall, I am in favor of this lowering gas price, but can see the negative effects as well.

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  40. With the gas prices going down, I think most of us are pretty excited to see the major decrease in prices but I don’t think it is very beneficial or helpful to the businesses and corporations that rely on gas prices to help with their companies. Since the gas prices have been decreasing and will continue to do so, companies that rely on gas prices are going to lose money or possibly even shut down due to gas prices decreasing. It is beneficial to most of us because we don’t have to pay as much for gas, but it isn’t beneficial to those companies. Overall, I think the gas prices being so low is beneficial because it is saving money for us as customers where we are able to go spend more at other businesses and corporations so they would be making a profit out of the gas prices decreasing as well.

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  41. You would think that falling gas prices would increase the demand, and therefore be beneficial to the economy. It's hard for us to imagine this from a different perspective because most of us drive, and we are always waiting for the gas prices to drop. What an interesting post!

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  42. Although I knew that some people would hurt from the drop in oil, I always assumed they were only hurting economically in other countries, but I didn’t think it could affect oil producers here in the United States. This decrease in prices of oil benefits the economy not only from the saved money, but also the increased consumer confidence, which I wouldn’t normally associate with the economic benefits of lower gas prices.

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  43. The price of gas has never really affected me before since my parents pay for it. But as I filled up my tank yesterday I noticed that the amount of money I spent went down by at least fifteen dollars. As I read Brad’s post it made me wonder if the lowering gas prices are really all that great. I saved only fifteen dollars, but I only fill up my gas tank every two weeks or so. However I know some people travel by car so much that they have to fill up every two or three days. If everyone is saving money, then are the gas companies making any money? To me it seems that they are only losing money and if gas prices continue to fall, there has got to be a point where they will start letting people go. The low gas prices may be helping the economy now, but when the gas companies start letting people go, that certainly won’t help.

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  44. As a driver who pays for their own gas, the cheaper gas has been great. I can spend less on that and spend more money on things that I actually want. But I can easily see how much it hurts other companies and different people. And I know that if the prices keep going down that it could be killer for the companies but I am still enjoying. I think that they (the government) needs to find a way for the gas to be cheaper while the companies are still making money. This way the companies are still getting money to keep the company alive and the consumers are happy with the lower prices in gas.

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  45. Another great topic in the PHS econ blogs. I really enjoyed reading this, because I really agree with you. Gas prices being this low are nice, however they will probably come back to nip us in the butt soon enough. I don't think many people realize that. Prices are so low right now because of lack of consumption, but what happens when we become dependent on these under 2 dollar gas prices? They will go back up at one point this year and in time, and its going to hit people hard when they go up higher than they used to be. Stock up now...

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