Notre Dame ReSource: Supply-and-demand driving gas prices

Author: Dennis Brown

James Sullivan

The basic economic principle of supply-and-demand – but mostly demand – is causing the average price of a gallon of gasoline to approach $3, according to a University of Notre Dame economist. **

Some of the blame for these high prices goes to supply problems in Africa, the Middle East andSouth America,said James X. Sullivan, assistant professor of economics.Just today (May 1), the Venezuelan government took over all remaining privately owned oil fields.Such events create greater uncertainty in oil markets.

However, a greater share of the blame for high gas prices should go to high levels of demand. Americans are consuming more gasoline today than a year ago. Moreover, high demand from rapidly growing countries, includingChinaandIndia, are keeping oil prices high, and this is likely to continue.

Sullivan added that, when adjusted for inflation,averageU.S.gas prices today, although high, remain below the peak in 1981.

He also cautioned against price caps.

Whenever gas prices approach their peak, some policymakers start to talk about capping gas prices,he said.Such price controls, however, would only make matters worse by creating gas shortages and long lines at gas stations.

* _Note to the media: Sullivans comments may be used in whole or in part. He can be contacted for additional commentary at 574-631-7587 or
_ *

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