With gas prices increasing across the United States, more and more drivers complain about the inconvenience of these abnormally large costs. Take California for example, where gas prices “have risen to as high as $6.42 as an average price per gallon” (Siegel, 2022).
For many, the reason behind the exorbitant prices remains a mystery. Though there are many forces at play, we can attribute high prices to simple economics which may help many to understand company decision-making.
What it really comes down to is what occurs when demand (consumers of a product) exceeds supply (the number of products businesses can provide); suppliers are able to charge high prices for the minimal resources they have because consumers are always willing to purchase gas, an inelastic good, (a necessary product). The current gas crisis has arisen due to the advent of COVID-19 and the Ukraine-Russia War.
With regards to COVID-19, the need for gas diminished substantially as many people weren’t on the road while quarantined at home. Anika Dewjee, an incoming Freshman at Northwestern University states that she “went nearly 6 months without being on the road”. As the pandemic ended and more people got back to driving, gas very quickly became an invaluable commodity again that companies had to scramble to produce to meet the demand, thus resulting in high gas prices.
The Ukraine-Russia War further exacerbated rising prices by diminishing access to oil. According to the New York Times, “8% of US Crude Oil imports came from Russia in 2021” (Koeze, 2022). Karla Boccelli, a Real Estate Agent at REMAX argues that “gas prices have risen constantly since the advent of the war.” The United States lost a key source of oil as a result of the war, thus leading to a lack of gas, which further contributed to gas prices rising.
Though prices may seem outrageous now, we can only remain optimistic that the aftershocks of the pandemic and the war will come to an end soon. Once that occurs, supply and demand will eventually find an equilibrium, and people will feel a lot better on their next trip to fill their tanks. In fact, average US gas prices are down to $3.9 per gallon by the first week of Oct. 2022.