When it comes to energy, we’ve been doing the Chicken Little thing for centuries, afraid that we’ll run out of whatever resource we depend on at the time for light, heat, transportation, and industry.
In the early years of our country, the fear was running out of whale oil. Later on it was coal, and since about the 1970s it’s been oil, the main ingredient in gasoline. Moaning about the rising price of oil and gasoline has become part of our daily routine. News reports track it, the stock market reacts to it, politicians rant about it, and we just live with it. We expect rising gas prices because . . . . Well, because, in our experience, that’s what gas prices do.
And the fact is that oil is limited, finite, nonrenewable. The more we use, the less remains. Econ 101, right? Resources are scarce, and as a resource becomes relatively more scarce, we pay higher prices. A year ago, gas was around $4/gal. and most of us wouldn’t have been surprised if it rose to $5 or even $6.
But it didn’t! Surprisingly, the price of gasoline began falling last summer . . . and it kept falling and kept falling – until we eventually had gasoline prices below $3/gallon, and then, in some places, below $2 gallon. (And you thought your grandparents were exaggerating when they told you about gas prices in” their day”!) By mid-January, 2015, the national average price of a gallon of gas was only $2.05, with some states’ averages below $1.85. The price of a barrel of crude oil, the natural resource used to make gasoline, dropped from over $100 a barrel to around $50.
The mystery of shrinking gas prices is a great opportunity to use the economic way of thinking and especially Economic Reasoning Propositions 3 & 4. In this Hot Topic, students look at the supply “rules of the game” in market institutions (ERP #4) and how the profit incentive (ERP #3) that led to our current “I must be dreaming” low prices and huge supplies of gasoline.
|Gas Prices (Students)
|Gas Prices (Teacher Guide)
The FTE thanks Jeff Spaulding, Social Studies Department Chair, Jefferson Middle School, Monroe, Michigan for the idea, design, and original draft of this Hot Topic. Mr. Spaulding’s lesson was edited, with permission, by FTE staff and any errors are theirs, not his. (Questions, please contact firstname.lastname@example.org.)