Fuel Problems in California

Link : http://www.bbc.co.uk/news/world-us-canada-19853740

The main problem of this article is about California fuel price rises force pump closures. Why can force pump closures in California? Why it can be like that? Based on the news from “BBC News US and Canada” in one part the Golden State price of fuel hit up to $5.69 a gallon (£ 0.91 per litre) $1.20 more than a gallon that is the nation most expensive patrol.

California was not running out the patrol but because of the power cut, exacerbating the supply problem in this few weeks. Many factors that make California fuel shortage, it because a fire a chevron refinery in Richmond on 06 August 2012, one of the region’s largest has left in producing at a reduced capacity. And also pipeline problem that move crude to Northem California was also shut down and two plans closed, in this several day California fuel resumed normal operation so in this case in this article, we can see that. Firstly why it can be change in supply. There are 6 main factors that can bring changes in supply.

·         The prices of factors production.

The prices of factors production used to produce a good influence its supply so when the price of the factors rises, the lowest price that produce it willing to accept so supply decrease.

·         Price of related goods produced

The price of the related goods produces that from produce supply. For instant that when fuel rise up to so high buyers or seller changing from fuel to solar energy.

·         Technology

A technology occurs when a new method is discovered that lowers the cost of producing goods.

·         Expected future prices

When a goods rise in future supply will decrease the good today selling the good in the future for a higher price.

·         The states of nature

Is it influence supply when bad weather, more broadly, natural environment, earthquake etc. So when good weather the goods is increasing when bad weather the goods decreasing for the supplier.

            So in this case there are two factors that really affected the supplier. Firstly expected future price, it is necessary for government take action to decrease the fuel in this few day for buyer and also the owner pump closures. In some of the owner looking that better to close the pump closure rather to cut the profit margins. This also can be affected to black market. The others one that related the case is the state of nature because in the article said that one of the fuel tank had a power failure for several day and that cause lack of fuel in California that make raise of the price, supply decrease but the demand still increase so make the fuel price raise up to this point.

Rises in the price of the patrol has changed the quantity of supplier to decrease. As we can see that the supply curve is moving leftward from So to S1. Due to increase the price of fuel, it occur a shortage. This shortage can be occur when the quantity of demanded has exceeded the quantity of supply. In this case, supplier cannot produce more than what the demand needed. Therefore, shortage was occurred. The second reason that can possibly affect the shortage is due to the maintenance. In the graph, it shows that when the price is $4.49, the quantities are 15 millions people that are willing to buy the fuel. And if the price rises or increasing up to $5.69 so the quantities decrease to 13 millions people that are willing buy the fuel every day.

When we discuss about Elasticity, there are two kinds of elasticity: Elasticity demand and Elasticity supply. Elasticity demand is a unit free measure of the quantity demanded of a good to change in price when all others influence on buying plans remains the same. And for Elasticity supply is measured of the quantity supplied a changed of supplied good when others influence remains the same.

Elasticity demand

Based on the article above, it describes about the Inelastic Demand because when the price rises from $4.99 or increasing up to $5.69, the quantity of demand (Millions of people) will remains the same or just affect a few number of quantity demand. Buyers will still purchase the fuel as majority they need the fuel for their car every day and small fraction of buyer will be shifting from using the fuel to solar energy and using the bus, cap (taxi) or use bicycle for their transportation. However, there are still many buyers that willing to buy the fuel for their transportation although there might be lack of fuel or increasing fuel price nowadays (E=0).

Taxes is increasing the price by the government law by the buyers and lower the prices received by the seller. I believe that in many countries that buying the fuel outside the countries so government must pay taxes to others countries and charged to buyers and make received by the seller becoming lower. This also applies in this case.

When we discuss about subsidies, Subsidies is a benefits that given by the government to decrease the price paid by the buyer and increase the price that received by seller. In my opinion, subsidies are needed because now in California lack of fuel causes of the electricity problem and causes the fuel price rise up to $5.69. Therefore, when government provides the subsidies, it will cause the fuel price to decrease for few days.

In conclusion, shifting in the supply curve can be directly affected by the factors of expected future price that can cause the price of the fuel in California and affect some of the pump closures closed for week because it can cause a cut in the profit margin cost. In my point of view, the suitable recommendation will be the problem of electricity in California could be reduced so that the fuel industry could resume their production and the fuel price will decrease to an average price in California. Besides that, if government could provide subsidies to citizen of California, it would be great benefits to those people who needed the fuel for their daily needs. Therefore, by the government intervention such as subsidies, it could help them to purchase the fuel in a possible lower price.