Americans Cut Back on Gas

American demand for gas, big cars begins to wane

Ana Campoy. "Americans Start to Curb Their Thirst for Gasoline." Wall Street Journal March 3, 2008

As oil just reached a new top record, Americans have decided to cut back on gas. This is a first in 16 years, the government says. Economists expect a further slowdown in the next year, if the conditions worsen. Car dealerships have been the first to notice the cut-back, their sales have decreased of about 26% this year.


As the high demand for crude oil increases in the United States, the prices of the barrel are reaching the ceiling. Being a scarce resource, oil is, at this point, necessary for many industries in the United States but extremely expensive. With conflicts in the Middle East, which provides about 1/5 of all the oil in the country, there is most likely to be another important increase in price over the next few months, if not years. The prices of the barrels have reached records, and the government has registered a cut back on gas, which hadn't happened since 1994. Americans are now trying to use as little gas as possible, and car dealerships noticed that there was also a cut back on the purchase of large cars. The opportunity cost to buy gas has become too important and Americans have decided to slow down on gas consumption. Due to this high demand for gasoline, the prices have increased dramatically. The opportunity cost will soon become too important for many households in the United States and they will have to rely on other resources to fuel their cars. The situation will not get better anytime soon, and worse conditions are expected. The shift of the supply curve is due to the resource costs, because the availability of oil stays the same, but people are demanding more. This causes the supply curve to shift.

The article mentions that car dealerships are the first ones to notice the changes because their sales have dropped by almost 25% since last year. This is mainly because gas and cars are complements and since the price of gas has increased dramatically, people are less likely to invest in cars that consume a lot of gas. Therefore there is an inverse relationship between complements, because if the price of gas goes up, the demand for cars will decrease. The decrease in demand for cars is due to the rise in prices of gas, which is a complement of large cars.













Special circumstances, such as the current conflicts in the Middle East, will decrease the supply for gas, but the demand stays the same or even sometimes increases, therefore the prices will go up considerably. Middle Eastern countries produce about 20% of the United States imports of oil, which is very significant and if problems were to occur, the effects could be dramatic for the whole industrialized world.
But since January, the quantity demanded for oil has decreased because people have been finding new transportations, and have been trying to use less-polluting cars. This does not mean that the price of oil has increased or decreased, but rather stayed the same. If Americans try to consume as little gas as possible, the prices will eventually go back down, yet people are still consuming too much of it.