supply & demand project

8/2/2019 Supply & Demand Project

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Supply & DemandProject

Mariah StewartAviles 1st2/24/12


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Why are gas prices rising?

Two reasons contributing to rise in

gas prices are increased demandand increasing cost of oil due to

investing in the commodity.


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Increased Demand

Demand for oil growsas countries developand populations grow.

Worldwide increase indemand for oil isespecially due to a

boom in per capitaincome in the twomost populouscountries in the world,

India and China which


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Increased Demandcontinued

As they develop and their per capitaincome grows, more people arebuying cars as well as using more

resources than they would havepreviously been able to afford.Although the per capita energy use in

India and China is not even close tothat of Europe and North America, itis sure to rise in the future withfurther economic growth. The currentand future sur in demand in these


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Commoditites Speculation

The other contributorto the price of gas iscommodity traders

who buy and sellfuture contracts onmaterials and

resources such as oil.Commodity tradersmake a profit bybuying a contract andthen settin a hi her


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Speculators continued

Fears about political unrest, naturaldisasters, and economic patterns alltend to have the greatest effect on

traders predictions. If the speculatorforesees any increased demand ordecreased supply, they will jack up

their prices. Even without fluctuationof supply and demand, commoditiestraders are driving up the price of oilby investing money that was onceinvested in real estate or the stock


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Some Background Info

Acommodityisany resource,material, or raw

product (used tomake otherproducts) that is

traded. They arebought and soldbuy businessesthat need themto o erate or b

Commodities aretraded on futures

contractswhich aredeals that dictate theamount of thecommodity, itspredicted future price,and a specific date at


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More Background Info

Indexspeculatorsare the peoplewho predictthese futureprices and thus

set the price forthe commodity.

These are

investors thatarent

THESE THINGS ARE IMPORTANTBECAUSEThey threaten the marketsinherit nature by trading with no regard forsupply and demand which reverses themethod by which prices are set. To makemoney, the speculators usually bet on

increases which immediately raise thecommoditys price. Also these speculators aremerely placing bets based on prediction andhave no interest in the actual buying andselling of the commodity, and in the case ofoil, theyre making a lot of money byinfluencing the futures market. Speculators

cause producers to horde theyre product sothey can sell it later at a higher price whichdecreases supply available to consumerswhen, in fact, the supply is there. Speculatorsare at fault for creating an artificial marketindependent from supply and demandinfluence but completely reliant on the prices

set by the people who make more money thehigher it is.


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What do we do now?

In recent years, the Government hasimplemented new regulatory laws inorder to decrease dependence on oil.The Energy Policy Act is a bill, passed in

2005, that was intended to promotealternative energy development withtax incentives. It rewards consumers formaking energy conserving purchases,for example, giving tax breaks to thosewho make energy-efficientimprovements to their homes. In the

case of the car industry, the actreplaces the clean-fuel burningdeduction with a tax credit, a deductionfrom total amount of federal tax owed,for owners of hybrid vehicles. TheEnergy Policy Act also increased thepercentage of bio fuel (ethanol) that

must be mixed in gasoline sold in theU.S.

CAFE stands for Corporate AverageFuel Economy which is the required

average fuel economy for amanufacturers entire fleet ofpassenger cars and light trucks foreach model year. If a manufacturerfails to meet that standard they arerequired to pay a Gas Guzzler taxwhich is intended to discourage

production and subsequent purchaseof fuel inefficient vehicles. CAFEprovides incentives in the form ofcredits to any manufacturer whosefleets average fuel economy for aparticular model year exceeds thestandard. Earned credits can be usedby manufacturers to offset previousshortcomin s.


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How we have adjusted

In my family, as with many otherAmerican families, we are cuttingback on gas usage and everything

else we spend money on. My momgot a hybrid car last year and I try tocarpool almost everywhere. Also

havent been on vacation since 2009,thats a long time!


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An Alternative: Ethanol

Ethanol isan alcoholthat can bestripped ofits watercontent and

highlyconcentrated(until it is not

potable) andused as fuel.

With the soaring prices ofgasoline, society is getting moreand more interested in analternative fuel. One of these

alternative is bio-fuel or ethanol.

The ethanol making process starts with thefermentation of any starchy plant (one that

contains carbohydrates). The plant is stripped intothree parts: lignin, cellulose, and hemicelluloses.

The cellulose or starch is then converted to sugarand sugar is fermented by microorganisms (yeast)feeding on it. The byproducts of this fermentationprocess are ethanol and CO , the ethanol is then


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Switching to Ethanol

In recent yearscarmanufacturershave increasedthe number ofFlex Fuel

vehicles theymanufacture.

These vehicles,

including E85vehicles are

Converting to ethanol asfuel as many drawbacks forthe consumer as well asmanufacturer, the first

being that ethanol contentin gasoline reduces a carsfuel economy by 20%because it isnt as efficientas pure gasoline. To make a

vehicle E85 capable,manufacturers must modifythe original models engineswhich costs them anywhere

from $100-$150. Consumersare not charged any more


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Sources of Ethanol:Corn

Ethanol can beproduced fromany plant

containing starch.Americas currentfavorite source of

ethanol is corn.For every one unitof fossil fuel usedto produce cornethanol, 1.3 units


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Sources of Ethanol:Sugarcane

Another popular source of ethanol issugarcane. Unlike corn, sugarcanedoesnt need to be broken down to

get any sugar out of it and it yieldsmore than twice as much ethanolper acre as corn. Brazil grows a ton

of sugar cane and is the leadingproducer of sugarcane ethanol.

For every one unit offossil fuel energynecessary to producesugarcane ethanol, 8units are produced, and

running on sugarcane


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Sources of Ethanol:Cellulosic

A third source for ethanol production

that doesnt cut into food supplies isplant byproducts. These are stalks,grass, leaves, cornstalks, switchgrass,wood, sawdust, etc. Although not yetproduced commercially, cellulosic


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When corn is used forethanol

About 25% of the items in a typical grocery storecontain corn in the form of corn syrup, corn

starch, corn flour, corn meal, and ground corncobs. As we use more of our corn supply for fuel,

less supply is available for food production, andprices will skyrocket.

In Mexico, the price ofcorn tortillas, a majorstaple in their average citizens diet, has doubledin the past year. Even the production ofchickenmeat and eggs is going to feel the effects of

smaller corn supply. Poultry feed is about two-thirds corn and chicken and egg prices have


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Is corn the answer?

NO. Corn ethanol isnot the answer toworldwide energy

concerns. Corn isalready massproduced and

heavily subsidizedin the U.S. but thisis because wealreadyuse it in somuch stuff Shiftin

But neither issugarcane the answereither! With sugarcane inBrazil, it is basically the

same story. Also, themore popular sugarcaneethanol production is, themore deforestationoccurs so the

environmental upsides

SO I see cellulosic ethanol as the answer to thisquestion. It requires very little fossil fuel energy to

produce and there are no industries competing forits su l ! B usin lant b roducts less

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