Rise in Gas Prices

In an article by Kris Maher in the Wall Street Journal the rise in gas prices had caused a shift in demand for the natural resource. The gas price average for a gallon is now at $3.67. This rise in gas prices are not only hurting the individuals paying to fill up their personal tanks, it’s also affecting the businesses that rely on gas to power machinery and equipment. This is affecting the prices of the product that these machines are creating, because it’s now more expensive to run the machines with gas. This has forced firms to take cut budgets elsewhere in the company to avoid a price rise in their products. The firms know that the consumers are extremely aware of price changes. Wallace Tyner, an economist at Purdue University said that volatility—and visibility—of gas prices have a great impact on consumer psychology. "Every gas station has the price posted in big numbers that are a constant reminder of the changes," he said. I completely agree with Mr. Tyner’s observation on the consumers. Each consumer is looking to spend the least amount on gas they can, because they already know how the change in gas prices can vary from station to station. Therefore keeping a close lookout for the cheapest gas in town creates an immediate demand from these consumers. In a recent poll by Wall Street Journal 69% of respondents said that they had been affected “a great deal” or “quite a bit” by an increase in gas prices in 2011 compared to 55% hit by a jump in food prices, 28% by an increase in the unemployment rate and 22% by a rise in the number of home foreclosures.

The gases prices are affecting all different products in the market, because gas such a necessary resource in a lot of our lives that it’s inconvenient to substitute it with. Some of these substitutes are seeing an increase in their business such as bus services that are able to raise their prices to still look low compared to the high airfare. So with the rise in prices for gas the consumer is still reliant on business such as gassbuddy.com is finding stations with the lowest gas prices and making it available to everyone. The website has seen a 20% increase in marketing advertisements revenue. The gas prices are a big topic in many homes while discussing the budget. This rise in prices have differed consumers to use substitutes and creating an awareness of the changes in prices. With this decrease in demand for high gas prices business is taking advantage in finding new ways to advertise the cheapest gas. With the importance of the lowest price on everyone’s mind while filling up their tanks creates a large demand for stations with that price. The consumers are taking these prices they find on sites like gasbuddy.com and comparing them whenever they drive by other gas stations and see their prices on the board. Gas prices are going to continue to rise thus creating the demand for a reliable substitute for gas one of the biggest discoveries we could see in our lifetime.

http://online.wsj.com/article/SB10001424052702304453304576391970280109838.html?mod=WSJ_economy_LeftTopHighlights