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Fill 'er up, Please

Key Economic Concepts:

• Choice
• Consumers
• Decision Making
• Demand
• Incentive
• Markets
• Price
• Producers
• Supply
• Taxation

Description:

Americans drive more than 2.6 trillion miles per year, that's 14,000 round trips to the sun! And for the most part, these vehicles are all running on gasoline. For many of us, we watch the price of gas as closely as the price of a gallon of milk, or the price of a movie ticket. This activity provides the students an opportunity to learn how gas prices are created and what are the components of the final price.

Lesson Objectives:

Students will:

• Explain why gasoline prices fluctuate according to the demand and supply (market mechanism.)
• Explain how the price of the resource influences consumer purchases of vehicles.
• Identify the components that influence the price of a gallon of gasoline.
• Predict the most likely consumer behavior based on the approximate cost of a gallon of fuel in a particular country.

Introduction:

Ask the students the following question. What travels the distance of 14,000 round trips to the sun per year? Answer: American vehicles! Yep! No kidding. We drive more than 2.6 trillion miles per year in cars, trucks and SUVs. In our personal vehicles we fill up 115 billion gallons--yes, that's with a "B" -- of gasoline and diesel fuel PER YEAR.

We all watch the prices at the local pumps as closely as the price of a gallon of milk, a loaf of bread or a Whopper sandwich, yet statistics report that our average fuel economy of cars and light trucks is at the lowest level since 1980! Well, just how did that happen? Before starting the lesson, have the students watch several gas stations and record gas prices on a daily basis. If the students can carry out this introductory activity after a weekend or a holiday, so much the better because students then will likely record price jumps.

Resources:

"How Stuff Works: How Gas Prices Work"
www.howstuffworks.com/gas-price.htm ^[1] This site explains why the price of gasoline goes up and down.

"Department of Energy"
www.energy.gov/ ^[2] This is the U.S. Government's department site.

"Department of Energy: Oil Refineries"
www.eia.doe.gov/oiaf/servicerpt/refinery.html ^[3]
This page of the site informs the reader more about oil refineries.

"Bureau of Transportation Statistics"
www.bts.gov/ ^[4]

This site contains transportation data.
Answers to Student Research Log

Process:

The purpose of this lesson is for each student, individually or with a partner, to initiate the research process, record their findings, and utilize their findings to create a chart, a graph or other answer to one of the "Think About it" questions. Tell the students to feel free to explore the other web links to improve their understanding of the process of getting oil from the ground to their gas tank.

1. Locate the following web site; www.howstuffworks.com/gas-price.htm. ^[1]
Print the article for easy reference and include it in your Student Research Log. Read the article: "How Gas Prices Work".

"Department of Energy"
www.energy.gov/ ^[2]
Use the U.S. Department of Energy: Oil Refineries web site www.eia.doe.gov/oiaf/servicerpt/refinery.html ^[3] to learn more about the production of today's oil refineries.

2. Tell the students to print and use the following chart to compare gas prices over a fifty year span. Remember to use the X axis for years, and the Y axis for price.

Ask to the student to think about and answer the following questions:

• What happened in the 1970s to gasoline prices and why?
• What has happened to the real price of gasoline?
• What effect would that change have on purchases of automobiles?
• What signal did this send to consumers?
• How did consumers react in their choices of vehicles?

3. After the students have read the article "How Gas Prices Work" - have them go back to their Student Research Log and answer the following questions:

• Hong Kong and Seoul, South Korea are relatively near Indonesia. Why is there such a large per-gallon difference in prices?
• What generalization could be made about the countries with the least expensive price for a gallon of gasoline?
• What generalization could be made about the countries with the most expensive price for a gallon of gasoline?

Conclusion:

Here are two mysteries for the students to solve:

• If the United States is the second largest producer of oil in the world, why are we importing so much petroleum?
• In petroleum markets, if you want to make more money, you sell more barrels of oil. Is this statement true or false? Prepare a short explanation defending your position.

Assessment Activity:

Use one of the following questions to evaluate students' syntheses of their research:

• What happened in the 1970's to prices and why?
• What has happened to the real price of gasoline?
• What effect would that change have on purchases of automobiles?
• What signal did this send to consumers?
• How did consumers react in their choices of vehicles?

Have the students answer the following questions:

• Hong Kong and Seoul, South Korea are relatively near Indonesia. Why is there such a large per gallon difference in prices?
• What generalization could be made about the countries with the least expensive price for a gallon of gasoline?
• What generalization could be made about the countries with the most expensive price for a gallon of gasoline?

Extension Activity:

The science teacher in your school might be interested in the work your students have done for this lesson. She or he might also be interested in knowing about some of the web sites.

Bureau of Transportation statistics contain household budgets. If students use the excel spreadsheets they can compute what percentage of average household income is allocated to gasoline. Dollar values are provided, but if the student enters =b16/b6, the cell returns percentages. In the case of the average household, 3% of annual income flows to the gas pump. Students could then carry that standard back to the department of energy's gas mileage link and compare the cost of fueling a new vehicle of their choice.

"Pricing Gasoline & Oil Production"
www.cnn.com/SPECIALS/2000/oil.prices/ ^[5]
Access this site to see explanatory graphics on gasoline prices and oil production.

Links Used:

1. ^{^ ^} "www.howstuffworks.com/gas-price.htm" - (www.howstuffworks.com)
2. ^{^ ^} "www.energy.gov/" - (www.energy.gov)
3. ^{^ ^} "www.eia.doe.gov/oiaf/servicerpt/refinery.html" - (www.eia.doe.gov)
4. ^{^} "www.bts.gov/" - (www.bts.gov)
5. ^{^} "www.wtrg.com/prices.htm" - (www.wtrg.com)

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