It could not be expected that these measures would have an immediate impact on gasoline demand. Changes are likely to take some time before the real impact is felt. However, this slowing of demand growth is indicative that the process has begun and that it will continue to grow in the future.
Exploring Alternatives
The answer to resolving the issue of gasoline price in the future is the same for both short- and long-term goals. In order to control gasoline prices, supply and demand must be kept in a near-equilibrium state. However, OPEC will never allow this to happen, as this means that they are unable to maximize their profits by using their intricate knowledge of price elasticity and the market. The only reaction that the U.S. government has is to find alternatives to OPEC gasoline and to continue to find ways to decrease U.S. demand. Decreases in U.S. demand would have a major impact on world demand, as the U.S. is a key consumer of gasoline products.
If the government chooses not to intervene, but rather to let the capital markets fulfill their purpose, demand for gasoline products would continue to rise at an alarming rate. If new non-OPEC sources were not found, prices would continue to hover at just below the breaking point of the American consumer. A government effort is needed to jump start initiatives to decrease demand on foreign oils. Whether these efforts concentrate on developing more fuel-efficient cars or developing alternative fuels, the net result must be the reduction in demand for oil products.
Gasoline prices are a complex matter. They are a combination of factors that the government can control and those over which they have no control. The government can make an attempt to encourage Americans to reduce their dependence on foreign oils. They can take steps to make certain that gasoline retailers are not cheating...
However, they cannot control the actions of OPEC and other foreign entities. They can join forces with other international entities, but in the end, it is OPEC who has control over their oil. Taking actions against OPEC can have a negative impact on the stability of relations with those countries that could affect other areas as well. Therefore, these actions can only be undertaken with extreme caution.
The government can take actions to encourage Americans to be more fuel efficient and less dependent on foreign oils, but in the end it is the American consumer that has the most control over the situation. They may be encouraged by government incentives offering tax incentives, but they will make their decisions based on the perceived benefit of their purchase decision in relation to all of the other factors that must be considered.
Government intervention in a capital market in a questionable subject for many economists. There is a concern that if the government intervenes too much, the integrity of the markets will be compromised. However, the government also has an obligation to protect the interests of the people of the United States. Therefore, in some cases, they must intervene to attempt to protect the markets for all. This is the case with gasoline prices.
High gasoline prices can have a devastating impact on other areas of the market. As consumers must channel more of their income into transportation, it leaves less to spend in other areas. This creates an imbalance where the gasoline market outpaces other areas of the economy. The government must take action to protect the whole economy.
References
Horsley, S. (2006). Q & a: What's Behind High Gas Prices? NPR. Business. 27 April 2006. Retrieved 15 February 2009 at http://www.npr.org/templates/story/story.php?storyId=5365439
