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Middle and high school activity (Grades 6–12)

Content standards: National Council on Economic Education Standards 4 and 8

Gas Buddy
50–90 minutes

Related Links
GasBuddy.com Web site off-site image
Description
Students use the Internet to investigate habits surrounding gasoline use, current news clips on gas prices, historic prices of gas, and the impact of gas prices on consumers like themselves and their parents.

Procedure
1. Review the basic effects of a decrease in supply (higher equilibrium price, lower quantity supplied). Review the basic effects of an increase in supply (lower equilibrium price, higher quantity supplied). Ask students which situation they as consumers would prefer for the market for gasoline. (Most will say they prefer an increase in supply.)
   
2. Introduce students to the concept of a negative "supply shock" by explaining that sometimes events happen too quickly and dramatically decrease the supply of energy sources, including oil and gasoline. Ask students to hypothesize about events that could cause a negative supply shock. (Answers might include war, other political tension, or natural disasters.) Explain that the opposite of a negative supply shock is an increase in supply that can bring oil prices down and the quantity supplied up.

For teacher's reference
A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden change in the supply of a particular good. This sudden change affects the equilibrium price.

A negative supply shock (sudden supply decrease) will raise prices and shift the aggregate supply curve to the left. A negative supply shock can cause stagflation (inflation and negative growth) because of a combination of rising prices and falling output.

An increase in supply will lower the price of a good and shift the aggregate supply curve to the right. (A positive supply shock is unlikely, especially in the energy market, because very few events would cause oil to be brought to market quickly enough to represent a "shock.") An increase in supply could be the result of an advance in technology that makes production more efficient, thus increasing output over time.

3. Ask students what they and their families need oil and gasoline to do. Help students see that dependence (or inelastic demand, if students are familiar with the term) makes the economy vulnerable to negative supply shocks. Tell students they will be assigned to a group and will be using the Internet to investigate habits surrounding gasoline use, current news about gas and gas prices, historic prices of gas, and the impact of gas prices on their own finances.
   
4. Create roles for each person in each group. Have each group present their findings to the class. The roles may include researcher, presenter, illustrator/visual artist, writer, and presentation developer.
   
5. Have students visit the Web site www.gasbuddy.com. Assign one of the following tasks to each group of students, or complete each task as a class.
Chart 1: A Supply Shock
Chart 1: Supply side
Source: Wall Street Journal

  1. Group A: See the feature "This Week's Opinion Poll." Poll the other students in the class with the week's question. Graph your findings. Compare the results of your classmates with the results of those who have taken the poll on the Web site. Are there similarities and differences? Look at the results of several of the previous weeks' polls. Create bar graphs to show the results of the other polls and share them with the class. Explain which answer to those polls your group members would have chosen, and defend your position.

  2. Groups B, C, and D: Choose one of the articles in the "Recent News" feature. Summarize the main points in the article and prepare a visual representation of the article (for example, a poster). Give a brief presentation of the article, including a summary and explain how oil prices have been affected. (Note to teacher: Monitor student selection of articles to guarantee that no groups select the same article.)

  3. Group E: Go to the "Historical Price Charts" feature. Make your own price charts by using the tools below the graph labeled "customize price charts." After familiarizing yourself with this function, create your own price chart to determine what the three-year average price of gas has been for your city or the closest one to you that is listed. Also include on the chart the average price of gas for the United States. To complete this step, put the following information in the drop-down menus:
    i. Area 1: Your city, or the closest one to you
    ii. Area 2: USA Average
    iii. Time Period: 3 Year
    Answer the following questions: Does your average tend to be higher or lower than the rest of the United States? What are some possible explanations for the difference? When have gas prices been the highest? When have gas prices been the lowest? What do you think accounts for the dramatic spike in prices in 2005? Illustrate the impact of the 2005 spike in prices using a supply-and-demand graph, with a brief written explanation below your graph.

  4. All groups (optional): Predict what will happen to gas prices in the future and explain the reasons for your answer. How will this affect people like you? It what ways might it change driving habits? What impact could your prediction for gas prices have on inflation?
   
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