This week in Macro, we talked all about supply and demand. According to NY Times, (link below), gas isn't cheap anymore and that is affecting our economy and environment.
The article talked about supply and demand. It said "The most obvious way to hold down the price of oil is to increase its supply." This shows an inverse relationship. However, in class we learned that as price decreases, the quantity of supply also decreases, making it a direct relationship.
We use supply and demand in our lives everyday. Pretend there is a drought in Florida, when you go to the store to get oranges, (something that is usually mass produced there), the price of oranges will be higher than usual. This is because of the rules of supply and demand. Since the supply of oranges went down due to the drought, the supply curve shifted down. Also, there was a movement along the demand curve because the prices increased. You can see this in the picture below.
Now, to connect this back to gasoline, if gas prices increase, then the demand for gas decreases. Less people will choose to drive to work or school. Which causes a movement in the demand curve and the supply curve stays the same.
http://www.nytimes.com/2015/01/27/upshot/gas-still-not-as-cheap-as-it-used-to-be.html?_r=0
I agree with you. I'd also like to add that an increase in gas prices could definitely help other markets, for example, the market for bicycles. Even though the gas industry might have problems if more and more people use other forms of transportation, other markets might actually begin to flourish if gas prices get too high.
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