Tuesday, April 24, 2007

Make May 15th National Ride the Bus Day

There is a movement afoot to not buy gas on May 15th. Conservatives are arguing that if people choose to not buy gasoline on May 15th it will actually raise gas prices on May 16th. I fail to see the correlation.

Gas prices, like other items in the economy are priced based on supply and demand. Some basic economic principals are important to remember. As supply goes up, price goes down. As demand goes up price goes up. If supply goes down, price goes up. And as demand goes down, price goes down. When supply and demand meet, the market is in equilibrium.

So what happens if on one particular day people do not buy gas? On that day, demand will go down and supply will go up, which theoretically, if the trend continued, would actually lower the price of gas. Alright, but what happens on subsequent days when all the people who don’t buy gas on May 15th go to the pumps? There will be more supply, because people did not buy gas on May 15th, and there will be more demand, because people who did not buy gas on May 15th potentially will need to buy gas on May 16th. Won't this then cause the price of gas to go up on May 16th? No, for two reasons: 1) Gas is not that volatile. One of the primary factors that determine the price of gas are U.S. crude oil inventories, which will effectively be unaffected if people don't buy gas one day and then buy the same amount of gas they would have bought on the following day. 2) Unless people increase their demand above what would be normal for a two day period, the price of gas will not increase. If people buy gas on May 16th and not on May 15th without increasing the amount of gas that they would have consumed during that two day period, the price will not increase. What will happen is that the market will simply go back to equallibrium and there will be a zero net change in gas prices based on consumer activity.

The problem with simply not buying gas on May 15th is that it won't have an effect on the oil company. If people drive on May 15th and simply do not buy gas on May 15th, they will be using the same amount of gas that they would have any way and will have to buy gas that they would have had to buy any way. If people really wanted to affect things they would not drive on May 15th. If people didn't drive on May 15th, that would have an impact. It would decrease demand temporarily, but would permanently increase supply. On May 16th, demand would go back to its pre-May 15th level, but supply would be permanently increased due to the lack of consumption of gasoline on May 15th. What would this do? Going back to the top, as supply increases prices decrease.

I propose that we do this on May 15th, refrain from driving. You want to make an impact, you want to really affect oil and gasoline prices, don't use any. Every modernized country in the world utilizes mass transit, poor people use mass transit, and people who really care about not using oil and gasoline use mass transit. Why not make May 15th your first time.



Share on Facebook

0 comments: