Gas Prices

Pacitti, Aaron (CAP, PTL) Aaron.Pacitti at penske.com
Thu Jun 22 11:48:03 PDT 2000


I am curios if any LBOers have a cogent analysis of the gas price situation. I have heard more theories and speculation than analysis.

My own opinion is of domestic nature - increased production of larger vehicles (because they are more profitable) causes an increase in aggregate demand (and dependence) on gas, thus pushing up the price. When coupled with poor public transportation, you will give you that pesky price increase.

Gas, inflation adjusted, is cheaper than it was in 1969 (when it was $0.35 per gallon). Plus, the price we pay for gas doesn't reflect the social cost of its use - the negative externalities. So some might argue that gas is actually underpriced.

But there must be more at play ...OPEC, collusion/price fixing, the new EPA regulations in the Midwest. No?

Thanks, Aaron



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