Week 2: Assignment - Gas Pipeline
Grade: 100/100
I submitted as an attachment with formal APA formatting. Also
this paper is radically short on word count, but I could not think of
anything else to write about, or add fluff, to get the word count to
where it needed to be. As I recall this is about 50% of the
necessary word count.
Due to the
unique nature of gas, and the perception of its importance, it will
have a unique economic reaction. This will only become more
exaggerated in a situation such as the Arizona gas shortage of
2003. Due to this the shortage will affect both the supply and
demand curves.
The supply curve will respond as expected as
supplies rapidly deteriorated in this scenario. This will result
in a very rapid, and significant, shift of the supply curve to the
left. This will be represented as a significant increase in the
selling price of the gasoline.
As price increased to establish market equilibrium
this would normally result in lowering demand to a threshold that could
be met with the lower supply. Unfortunately, with a commodity
such as gasoline this will not necessarily have the intended
effect. Gasoline, as a commodity, is mentally tied to many other
factors. Certainly it serves as a necessity for travel to and
from work, as well as a means to pickup food and carry on daily
life. At the root is the ability to have a functioning car, and
the freedom that garners. Due to that any perceived shortage in
gas supply, whether real or not, will result in public panic.
Thus, under shortage type conditions consumers will not act
rationally. Furthermore, even if there wasn't going to be a
shortage of gasoline the perception that there will be a shortage will
ultimately create a run on the supply; similar to the run on the banks
at the beginning of the Great Depression. Thus due to the market
panic demand will skyrocket for this item regardless of the
price. This demand increase will push the demand curve heavily to
the right.
Ultimately it is difficult to assess where the
equilibrium point will be as demand is now based on fear. It is
definite that the supply curve will shift to the left and the demand
curve will shift to the right. Regardless, the price will most
likely hyper-inflate.
© Erik Smith 2005
Licensed under the GNU
Free Documentation License