An inconvenient expense (Part One) (Love Lines)

By Bruce A. Love

Gasoline prices have soared over $4 per gallon and there are indications that the rising cost of fuel hasn’t peaked yet. The current fuel crisis is affecting Americans in a hard way, as many search for alternative means of transportation and try to cope with the high cost of fuel oil in order to heat homes. Those on fixed incomes are affected most. Something has to give. I’ve decided to tackle this complex and sensitive topic in a two part column. As always, I invite your input on my blog (www.blog.loveconsulting.com).

It is difficult for most of us to understand why fuel costs have skyrocketed. However, in a free market (the most efficient, fair, and free economic system), prices of goods and services are determined by the mutual consent of sellers and buyers. Price decisions are made according to the economic principles of supply and demand. When demand is low or supplies are high (e.g., a product is overstocked), prices must drop in order to sell the product. Conversely, when supplies are low or demand is high, prices rise because the seller can get a higher profit. However, prices cannot continue to rise indefinitely in a free market economy because when others see very high profits, they will enter the market and compete for a piece of the action and thereby drive down costs. We, the consumer, can help to determine the cost of goods by our demand for them. In a free market economy, competition between vendors tends to decrease prices and increase the quality of goods because we (the consumer), when given a choice, will shop for the best product for our money.

The oil industry is experiencing an increase in the demand (primarily due to growing industrial economies worldwide). The Organization of the Petroleum Exporting Countries (OPEC), which manages much of the world’s oil supply, has determined that under current conditions of higher demand for oil and little in the way of competition, they can charge much more then they could previously. In order to drive the price of oil down, consumers must either demand less oil, produce more oil domestically, find alternatives to products made with fossil fuels, or a use combination of strategies.

Faced with difficult situations, Americans have always been able to assess challenging situations, develop plans of attack, and overcome adversity in grand fashion. As the saying goes, “necessity is the mother of invention,” and the current conditions have highlighted some very real necessities. Already, we see American ingenuity beginning to address the problem of higher fuel prices. Some solutions may take years before they have an effect, but others can have an immediate effect on lowering the amount of money we spend on fuel and other products made with petrochemicals. As individuals and families, we owe it to ourselves to take steps to lower our fuel expenses.

In our next column, we examine strategies that would have immediate impacts on national and individual demand for foreign fossil fuels, as well as exciting new strategies and options that have promise for long-term cheap and clean domestic energy. It’s an exciting time. The temporary discomfort we are experiencing now will inspire innovation in the future.

Love Lines

Love Lines is a blog for business and technology discussion.
Many of the entries are columns written by Bruce or Kären Love.
Click on "Comments" or any title below to post comments on any entry.

An inconvenient expense (Part One)

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About

Love Lines

Love Lines is a blog for business and technology discussion. Many of the entries are columns written by Bruce or Kären Love. Click on "Comments" or any title below to post comments on any entry.

An inconvenient expense (Part One)

Search

About

Love Lines is a blog for business and technology discussion.
Many of the entries are columns written by Bruce or Kären Love.
Click on "Comments" or any title below to post comments on any entry.