Effects of Rising Oil Prices

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In the past, the price of oil has led to economic recessions, such as the 1973 and 1979 energy crises. The effect the price of oil has on an economy is known as a price shock. In many European countries, which have high taxes on fuels, such price shocks could potentially be mitigated somewhat by temporarily or permanently suspending the taxes as fuel costs rise.[138] This method of softening price shocks is less useful in countries with much lower gas taxes, such as the United States. Some economists predict that a substitution effect will spur demand for alternate energy sources, such as coal or liquefied natural gas. This substitution can only be temporary, as coal and natural gas are finite resources as well. Prior to the run-up in fuel prices, many motorists opted for larger, less fuel-efficient sport utility vehicles and full-sized pickups in the United States, Canada, and other countries. This trend has been reversing due to sustained high prices of fuel. The September 2005 sales data for all vehicle vendors indicated SUV sales dropped while small cars sales increased. Hybrid and diesel vehicles are also gaining in popularity.[139] In 2008, a report by Cambridge Energy Research Associates stated that 2007 had been the year of peak gasoline usage in the United States, and that record energy levels would cause an "enduring shift" in energy consumption practices.[140] According to the report, in April gas consumption had been lower than a year before for the sixth straight month, suggesting 2008 would be the first year U.S. gasoline usage declined in 17 years. The total miles driven in the U.S. peaked in 2006.[141]
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