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Gas Prices and the Economy Matt Strait/04-0051-0072 DeWitt High School Kelly L. Williams P.O. Box 800, DeWitt, Michigan 48820 517-668-3102 Eight Pages
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Strait 1 Gas Prices and the Economy Introduction How often has the average American had to fill up at the pump? Most would say far too often. Whether the general public likes it or not, gas has become an important factor in every person’s life. Over the past couple of years, gas has hit record highs, rising to $4.00 per gallon and beyond. For better or for worse, the people of the United States, and many other countries around the world, are dependent on gas. Whether it is through economic factors such as supply and demand, price elasticity, business costs, or consumer spending, high gas prices certainly has an effect on the economy and every member of that economy. History of Petroleum The first successful oil well was drilled in Titusville, Pennsylvania, in 1859, by a man named Edwin Drake. In the early 19 th century, gasoline had only been a byproduct of kerosene, which was often used as an energy source for lighting. It was not until the car was invented that gasoline became a major energy source. Earlier models had been powered by steam or electricity but gas became more practical, and gas stations provided a convenient and consistent fuel source. Gasoline and petroleum use truly took off during World War I. Up to that point most other countries had been using horses for transportation. However, feeding the horses soon became expensive. More and more countries, such as Britain, began building cars in order to become more efficient and to cut back on expenses making petroleum a more common energy source, which caused oil to become a very strategic mineral. Until the 1940’s the United States was the world leader in oil production with approximately 65 percent of the world’s oil, while the Middle East had less than 5 percent. However, huge oil reservoirs were soon discovered in
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Strait 2 Kuwait and Saudi Arabia giving the Middle East a leg up on the United States when it came to oil production, which created the reliance of foreign oil that many are familiar with today. Supply and Demand of Gas The general rule of supply and demand, is high demand yields higher prices while low demand yields lower prices. Supply follows an opposite trend with lower prices when supply is high and higher prices when supply is low. High demand is one reason as to why gas prices have been so high as of late. Crude oil is the main component in the development of gasoline, so when the demand for oil is high, the price of gasoline is likely to be high. Developing countries such as China and India are beginning to consume more and more oil for industry and use more and more gasoline. In fact, a recent study shows that China’s demand for petroleum has doubled in the last ten years, a much greater increase than anyone expected. This has created a much
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This note was uploaded on 10/12/2011 for the course ECONOMICS 101 taught by Professor Johnson during the Fall '11 term at Michigan State University.

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