How are gas prices related to economics?

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rrteacher | College Teacher | (Level 2) Educator Emeritus

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Gas prices can be used to understand many different economic principles. One obvious example is supply and demand. There is a huge demand for energy, and there are limits on oil production (some natural, some man-made) and these lead to higher prices for gasoline. Rising prices at the pump also have major and serious effects on the rest of the economy. They force people to think about what they need and what they want, perhaps the most fundamental of economic principles. There are other aspects of oil prices that can be studied to illustrate various economic principles. Oil prices (gasoline is, of course, distilled from oil) are closely related to commodities markets, and involve political factors (as in the infamous 1973 Middle Eastern oil embargo, or the debate over off-shore drilling in the US.) They are also affected by natural disasters, as Hurricane Katrina demonstrated.