Rising costs of gas affect the economy and everyone in it, including business and consumer members as well as the general population. According to the EIA (2001), from 1997 to 1999, energy prices decreased, boosting the economy. If this had not taken place, steady prices would have reduced the growth rate of GDP by 0.3 percentage points. Following this period, energy prices first rose dramatically and then declined again. Over this four-year period, steady energy prices could have boosted GDP growth by 0.2 percentage points but the volatility found thwarted this growth potential (EIA 1). Volatility in gas and energy prices affects all consumers and producers.
High gas prices affect businesses. Decisions about business are made based on gas and energy prices as well as expectations of these prices for the future. If actual outcomes are other than what was expected, businesses fail in their investment decisions. Consumer purchases are also affected by gas prices since businesses must project higher costs due to increased energy prices. Thus, everyone is affected by increased costs of gas.
The rising cost of gas affects everyone on a daily basis. The gas price for the individual affects their decision to travel locally as well as to travel longer distances. People are more conscious of where they are going and how much it is going to cost to get there. Small local trips are altered or canceled. Decisions to travel on the weekend or make that yearly road trip are altered or canceled. Beyond this, costs of many products are increased due to the rising cost of gas and this affects the consumer. If more must be allotted for groceries, the cost of gas in the tank is even more heart felt. With costs rising everywhere, the consumer is less likely to drive unnecessarily.
With consumers staying home and spending less, businesses are failing. Thus, businesses su
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