cody-aung

[cody-aung]

Don’t we all love the increasing gas prices?

In recent years, the U.S. has seen an overwhelming increase in gas prices. The time period we will be looking at is the last two years because this is when we both truly felt the effects of this and had to make a change. In June 2020, the retail price of gasoline was about $2 and this was normal for everyone. However, the gas prices have gradually increased month after month. Two years later, the gas prices increased to about a whopping $4.76 and even passed $5 at one point. It doesn’t seem like that much of an increase but it builds up over time as someone fills up their gas tank quite often. For example, for someone who fills up twelve gallons in 2020 only pays $24. That same person is now paying $57.12 for the same amount of gas. The graph below shows this trend of increasing gas prices from June of 2020 to June of 2022. 

This data connects to the topic of changes in supply and demand in economics. In recent years we have seen a jurassic increase in the demand for electric vehicles, and especially Tesla, which was the company that made electric vehicles as popular as they are now. The number of Teslas sold from 2020 to 2022 visibly shows an increase in each month as seen in the graph below. 

When comparing the same time frame as above for gas prices, there were 15,456 Teslas sold in 2020. In 2022, 39,066 Teslas were sold in the month of June which shows an increase in the demand for this electric vehicle. Another factor that also increases the demand for an electric vehicle is the desire to be better for the environment and lower our carbon footprint. In the past, people were not too crazy about electric vehicles as the price of gas was fairly reasonable, and most people didn’t want to change something in their lives that isn’t worth changing. However, as the price of gas increased almost over $3 a gallon within the last 2 years, many people do not want to pay at times over $100 a fillup every week. Therefore, the increase in gas prices caused the demand for electric vehicles to increase drastically. A few years ago, one would barely see any Teslas out on the streets. Nowadays, you can probably spot Teslas all around you, and would honestly be shocked if you don't see a single one. Due to this increase in demand for electric vehicles, the price of electric vehicles has been increasing over time throughout the past few years. As seen in the illustration below, as a company, such as Tesla, receives a great increase in demand while still supplying the same, the market equilibrium shifts as the demand for electric cars increases, which in return causes the equilibrium price to also increase, which makes companies like Tesla charge more for their electric vehicles now, than they did before. For example, the cost of a Model 3 Tesla in 2019 was about $35,000. Jump forward to today, the cost of a Model 3 has increased to about $42,000. There is also another aspect of economics involved in this situation known as a budget constraint. As the price of the Teslas increase, some people may not be able to afford it anymore based on their income. People are limited in their choices by constraints and the optimal economic behavior is to do the best with someone’s personal preferences and constraints. The demand for an electric vehicle from Tesla varies in every person’s willingness to pay at each possible price. Over time, the substitution effect may come into play and that is when the price of a good goes up, other goods seem more attractive causing that good to be more likely to be consumed. Tesla may have other competitors if the prices keep rising and people are not able to afford their vehicles.

This all connects to both of our personal lives because we both own cars that require gasoline. We are directly affected by the gas price increase because it causes us to spend more money almost every week. Both of us commute to school for class and it is about a 2 hour drive. This causes us to take a trip to the gas station basically once every week. This results in a very sad bank account and less money to spend on other things that we would like to do. As gas prices increased, it did not make sense to spend all this money on a weekly basis. Both of our parents also commute to work and the drive is quite the distance. Every household is now spending tons of money that could be saved for vacation! When the time came to find a solution, Tesla shined ever so bright with their electric features. Both of our families were lucky because we realized the gas prices were increasing quickly. Tesla was making regular sales and they had not yet rocketed. However, we all realized that the clear option was to invest in an electric car. It just made sense and as gas prices increased, the demand for Tesla increased. No one wanted to spend all that money on gas, and electric cars quickly became popular. Tesla sales increased due to the increase in demand as shown in the previous graph. It’s clear that supply and demand can be seen in everyday life as it is shown here. A certain circumstance might come up that would cause a shift in demand or supply. In this situation, both of our families needed an electric car, causing the demand to increase. The supply had not yet increased because the increase in gas prices occurred in a fairly quick period of time. Economics is connected to everything around us and it can allow us to use graphs to see how the market will be affected by various occurrences. Thanks to economics, we now both own Teslas and save tons of money by switching to an electric vehicle. 

Cody Aung

Discussion time: Tuesday 7:00-7:50 pm with Levi

ID #: 21546598

Andre Baghdassarian

Discussion time: Tuesday 7:00-7:50 pm with Levi

ID #: 89277358

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