Market indices are shown in real time, except for the djia, which is delayed by two minutes. Chicago mercantile association: certain market data is the property of chicago mercantile exchange inc. Dow jones: the dow jones branded indices are proprietary to and are calculated, distributed and marketed by dji opco, a subsidiary of s amp p dow jones indices llc and have been licensed for use to s amp p opco, llc and cnn. Standard amp poor's and s amp p are registered trademarks of standard amp poor’s financial services llc and dow jones is a registered trademark of dow jones trademark holdings llc. All content of the dow jones branded indices 169 s amp p dow jones indices llc 2016 and/or its affiliates. With rising gas prices now rivaling unemployment as a key issue in this year’s election, both the president and his republican opponents have been speaking out about what, if anything, should be done.

Republicans argue that the nation needs more domestic oil and gas production while the president notes that oil is produced and sold on world markets, meaning that domestic supplies have a small impact on prices. That said, rising gas prices do affect both consumers and the economy adversely, and they are especially harmful to lower and moderate income households. One assumption is that these households do not all own cars, that many use mass transit instead. Looking at all households with annual incomes less than $50,0, it turns out that the vast majority 80% do own cars, and a significant portion over a third own more than one car. Of course, even if they do not own cars, higher gas prices can affect mass transit riders as well once higher costs show up at the fare box, although this undoubtedly occurs with more of a lag. Among low to moderate income households that do own cars, they drove about 10,0 miles and spent about $1,500 on motor fuel during 2010 when the average price of gasoline was about $2.80.

Gas prices are now approaching $3.80 a gallon, and some observers believe they could reach $5.00 by this summer. Every dollar increase, holding the number of miles driven constant, would cost these moderate and lower income households an extra $530 per year. For a family with an annual income of $20,0, this is an additional 2.7% of their total income. Although higher gas prices eventually encourage consumers to cut back on driving or switch to more fuel efficient vehicles, in the short run they may have few options but to cut back on other expenditures in the family budget. Since low and moderate income families rsquo spend most of their income on average, in the very short run they can only choose between spending less on other items and going further into debt. In addition, less spending on other items operates much like higher taxes in slowing an incipient recovery. That means that these families get hit twice: once by the direct impact on their household budgets but a second time when higher prices retard the economic recovery.

In a paper published pdf in the brookings papers on economic activity on the contribution of oil price shocks to past u.s. Hamilton finds that they slowed gdp growth significantly, often enough to tip the economy into a recession. Goldman sachs estimates that just the oil price increase since december will shave between a quarter and a half of a percentage point off of real gdp growth over the next year, and the effects could be more dire if oil prices continue to rise. To be sure, in the longer term, consumers will adjust how much they drive and how much they spend on gas in response to higher prices at the pump.

Research suggests that in the short term mdash less than a year mdash the so called price elasticity of demand for gas is about 0.25, meaning that if the price of gas goes up 10%, consumers will demand 2.5% less gas. If we apply these numbers to the gas expenditure figures above, i estimate that a $1.00 increase in the price of gas will result in low and moderate income families spending about $350 more on gas in the short term. Certain households, such as those living in rural areas without access to public transportation and thus no way to get out of their cars, will be hit even harder. Rising gas prices produce a level of hardship for a group that is already suffering from high levels of unemployment and stagnant or declining real wages. Even in good times, but especially in recessions, the least skilled are far more likely to be unemployed. In january 2012, the unemployment rate was 4.2% for those with a college degree, 8.4% for those with only a high school degree and a staggering 13.1% for high school dropouts. Similarly, a 2011 report by the national employment law project found that since the start of the recession, while workers in higher wage occupations saw 0.9% real wage growth, mid wage workers rsquo wages fell by 0.9% and low wage workers experienced a 2.3% decline in real wages.

Most experts do not believe there is much that government can do to reduce oil price spikes caused by unrest in the middle east or other short term factors. But the government can at least cushion such effects by providing unemployment insurance benefits, payroll tax cuts or other assistance to lower income households to help offset the impact of higher gas prices on both their pocketbooks and the strength of the economic recovery. However, although many consumer express frustration over high gas prices, and even attempt to pin the blame, most people have very little idea of how these prices come about. Here we'll take a look at the factors that determine the price consumers pay at the pump.

Essay on Effects of Technology on Human Life

For background reading, see understanding oil industry terminology. most people believe the price of oil is the primary determinate of the price of gasoline, but the forces that influence gas prices are a bit more complicated than the numbers suggest. To help understand how gas prices are set, it helps to examine supply, demand, inflation and taxes. While supply and demand get the most focus and the most blame for the high price of gasoline, inflation and taxes also account for large increases in the cost to consumers. To learn more, read how does crude oil affect gas prices? the basic rules of supply and demand have a predictable impact on the price of gas.

For background information on these economic concepts, check out our economics basics tutorial. It is graded by its viscosity light to heavy and by the amount of impurities it contains sweet to sour. This type of oil is in high demand because it contains fewer impurities and takes less time for refineries to process into gasoline. As oil gets thicker, or heavier, it contains more impurities and requires more processing to refine into gasoline.