How do gas prices relate to economics?

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rrteacher eNotes educator| Certified Educator

Rising and falling gas prices are related to a number of different economic issues. At the most basic level, they can be used to illustrate the effects of supply and demand on prices. The ever-expanding demand for energy interacts with the limits on oil production to lead to higher prices at the pump for consumers. In fact, oil is one example of a commodity with an inelastic demand, meaning it remains high no matter the price.

Rising gasoline prices can also be studied for the effect they have on individual consumer and family budgets, forcing average people to make decisions. Gasoline prices (or oil prices, more accurately) illustrate the workings of commodities and futures markets. Finally, few commodities are more closely related to politics that oil. Oil prices, and hence gasoline prices fluctuate due to political upheaval elsewhere in the world, due to government policies (opening federal lands for drilling and providing subsidies, for instance) and their fluctuations can become political issues, as they were in the 2008 presidential election and are today.