Econ Project Final

Econ Project Final - Group 54 Introduction Over the past...

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Group 54 1 Introduction: Over the past couple of years the price of oil and gas has begun to skyrocket. Because of this, many people in the economy are concerned with the shocking growth rate of gas prices and how long they will continue to increase. By analyzing past events and data, we can obtain a reasonably good idea as to the direction gas and oil prices will take in both the short and long term future. The following project shows our method of investigation, as well as our conclusion that high gas prices are simply a temporary event necessary to balance out the economy. Question One: Compare and contrast oil prices from 1970 to present? According to the graph and chart for oil prices, the 1970s began normally for the U.S. Until 1974, the nominal price per barrel had never peaked above $4.00. Beginning in 1979 however, the U.S. saw an exponential increase in prices, reaching a high of $31.77 in 1981. Following this spike, prices thankfully began a gradual fall back to a low of $12.51 in 1986. The 1990s saw an ever-shifting change in prices between $10 and $20 per barrel. The past three years have seen prices gradually increasing, from $21.84 in 2001 to $27.56 in 2003. From 1970 to 1972, the nominal price of gasoline held steady at $0.36 per gallon. The year of 1976 however saw the introduction of unleaded fuel and a climb in prices that eventually peaked at $1.38 per gallon in 1981. For the next few years, the U.S. experienced a gradual normalizing of prices, reaching $0.93 in 1986 before ascending once again. A peak was reached at $1.23 in 1996 and yet another monstrous high was reached in 2000 at $1.51 per gallon. The past three years have continued at this pace, seeing prices rise to $1.59 last year and further increasing.
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Group 54 2 From this data, both the price of oil and gasoline are surely related. This can be seen in the production of gasoline from oil (refining) and also in how the supply price of oil affects the consumer price of gasoline. The two experienced crests and troughs simultaneously throughout the past thirty years, indicating that they are indeed linked. Approximately what percentage of oil is made up of crude oil? Gasoline is made up of approximately 11.03% crude oil, which is processed in an oil refinery. The other 88.97% is made up of water and additives to increase octane rating, performance, and engine life (Government of Alberta). What are the other input prices that affect gasoline prices? 1. Other input prices include the actual transportation of oil to the consumers. First we must purchase the oil from wherever it can be obtained it, and then it goes to a refinery where the oil is refined into gasoline. Lastly it is sent to various distribution points that are responsible for selling the gasoline to individual gas stations and inadvertently consumers. 2.
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This note was uploaded on 04/01/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Fall '07 term at Penn State.

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Econ Project Final - Group 54 Introduction Over the past...

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