$4 gas, free market, tax burden question

[Disgruntled Patriot]

Before getting too carried away in demonizing the oil industry, consider the following:

– Crude oil alone makes up 54 percent of pump prices. Refining for 20 percent. Retailing another 11 percent. Taxes for 15 percent.

– The latest published data for the third quarter 2007 show the oil and natural gas industry earned 7.6 cents for every dollar of sales compared to 5.8 cents for all U.S. manufacturing and 9.2 cents for U.S. manufacturing, excluding the financially challenged auto industry.

– Earnings within the oil industry rank well below Beverage and Tobacco, Pharma, Electronics, Computer, Chemical, Aero, Apparel, and Machinery.

– The oil industry has spent $98 billion in emerging energy technologies since 2000—almost 73 percent of the total $138 billion spent by U.S. companies and the federal government combined.

– Company stock in the oil industry is owned by virtually all americans: 29.5% mutual funds, 27% pension funds, 23% individual investors, 14% IRA’s, 5% institutional, 1.5% corporate insiders.

– The average effective tax rate (current taxes) of the top 27 energy companies was 37.1 percent in 2006 ($81.5 billion). The effective tax rate for the market as a whole is 32.3 percent, or 3.3 percent less than the top energy companies.

– Petrochemicals are used not only for liquid and gas fuels, but also lubricants, plastics, and fertilizers.

The relationship of Big Oil to our society at large might be considered through the words of the great philosopher Ayn Rand “I don’t build in order to have clients. I have clients in order to build.” If you don’t like a product or service then it is the law of our wonderful land that you have a right to utilize your God-given talents to develop a better product or service. Complaining about the success of your industrious countrymen (be they corrupt or not) serves no useful purpose and fails to improve the circumstance of you or your community.

Disgruntled Patriot

[sdduuuude]

I think your assumption that consumers will “pay whatever price is being charged” is simply not correct.

Make sure you don’t mix up the idea of a monopoly/ogilopoly and price sensitivity.

Just because oil is needed, and there are a small number of sellers, doesn’t mean there is 100% insensitivity to price and that demand will not drop if the price is increased.

Also, given how much oil we use (waste?), I think usage could be reduced significantly with little loss in lifestyle. Thus, the price will have an effect on demand, especially when people are starting to feel poorer as they are now.

Not sure what you mean by “does the tax increase really matter?”

It does matter. It makes gas more expensive and lowers the profits of the oil industry.

The math works out to show that a tax manifests itself as both a price increase to buyers and a profit reduction to sellers. I forget the details, but the slope of the supply/demand curves affect what ratio of the new tax is absorbed by the buyers and the sellers. If buyers will buy at any price, they absorb the cost.

Again, this is related to price sensitivity, not to the number of sellers in the market. Even a tax in a monopolistic market can reduce the profits of the monopoly if the demand curve allows for it.

[sdduuuude]

I think your assumption that consumers will “pay whatever price is being charged” is simply not correct.

Make sure you don’t mix up the idea of a monopoly/ogilopoly and price sensitivity.

Just because oil is needed, and there are a small number of sellers, doesn’t mean there is 100% insensitivity to price and that demand will not drop if the price is increased.

Also, given how much oil we use (waste?), I think usage could be reduced significantly with little loss in lifestyle. Thus, the price will have an effect on demand, especially when people are starting to feel poorer as they are now.

Not sure what you mean by “does the tax increase really matter?”

It does matter. It makes gas more expensive and lowers the profits of the oil industry.

The math works out to show that a tax manifests itself as both a price increase to buyers and a profit reduction to sellers. I forget the details, but the slope of the supply/demand curves affect what ratio of the new tax is absorbed by the buyers and the sellers. If buyers will buy at any price, they absorb the cost.

Again, this is related to price sensitivity, not to the number of sellers in the market. Even a tax in a monopolistic market can reduce the profits of the monopoly if the demand curve allows for it.

[sdduuuude]

I think your assumption that consumers will “pay whatever price is being charged” is simply not correct.

Make sure you don’t mix up the idea of a monopoly/ogilopoly and price sensitivity.

Just because oil is needed, and there are a small number of sellers, doesn’t mean there is 100% insensitivity to price and that demand will not drop if the price is increased.

Also, given how much oil we use (waste?), I think usage could be reduced significantly with little loss in lifestyle. Thus, the price will have an effect on demand, especially when people are starting to feel poorer as they are now.

Not sure what you mean by “does the tax increase really matter?”

It does matter. It makes gas more expensive and lowers the profits of the oil industry.

The math works out to show that a tax manifests itself as both a price increase to buyers and a profit reduction to sellers. I forget the details, but the slope of the supply/demand curves affect what ratio of the new tax is absorbed by the buyers and the sellers. If buyers will buy at any price, they absorb the cost.

Again, this is related to price sensitivity, not to the number of sellers in the market. Even a tax in a monopolistic market can reduce the profits of the monopoly if the demand curve allows for it.

[sdduuuude]

I think your assumption that consumers will “pay whatever price is being charged” is simply not correct.

Make sure you don’t mix up the idea of a monopoly/ogilopoly and price sensitivity.

Just because oil is needed, and there are a small number of sellers, doesn’t mean there is 100% insensitivity to price and that demand will not drop if the price is increased.

Also, given how much oil we use (waste?), I think usage could be reduced significantly with little loss in lifestyle. Thus, the price will have an effect on demand, especially when people are starting to feel poorer as they are now.

Not sure what you mean by “does the tax increase really matter?”

It does matter. It makes gas more expensive and lowers the profits of the oil industry.

The math works out to show that a tax manifests itself as both a price increase to buyers and a profit reduction to sellers. I forget the details, but the slope of the supply/demand curves affect what ratio of the new tax is absorbed by the buyers and the sellers. If buyers will buy at any price, they absorb the cost.

Again, this is related to price sensitivity, not to the number of sellers in the market. Even a tax in a monopolistic market can reduce the profits of the monopoly if the demand curve allows for it.

[sdduuuude]

I think your assumption that consumers will “pay whatever price is being charged” is simply not correct.

Make sure you don’t mix up the idea of a monopoly/ogilopoly and price sensitivity.

Just because oil is needed, and there are a small number of sellers, doesn’t mean there is 100% insensitivity to price and that demand will not drop if the price is increased.

Also, given how much oil we use (waste?), I think usage could be reduced significantly with little loss in lifestyle. Thus, the price will have an effect on demand, especially when people are starting to feel poorer as they are now.

Not sure what you mean by “does the tax increase really matter?”

It does matter. It makes gas more expensive and lowers the profits of the oil industry.

The math works out to show that a tax manifests itself as both a price increase to buyers and a profit reduction to sellers. I forget the details, but the slope of the supply/demand curves affect what ratio of the new tax is absorbed by the buyers and the sellers. If buyers will buy at any price, they absorb the cost.

Again, this is related to price sensitivity, not to the number of sellers in the market. Even a tax in a monopolistic market can reduce the profits of the monopoly if the demand curve allows for it.

[sdduuuude]

Nor-LA-SD-guy

Do you think it would be easy to produce batteries without oil? You gonna lubricate the machines with whale blubber or something?

[sdduuuude]

Nor-LA-SD-guy

Do you think it would be easy to produce batteries without oil? You gonna lubricate the machines with whale blubber or something?

[sdduuuude]

Nor-LA-SD-guy

Do you think it would be easy to produce batteries without oil? You gonna lubricate the machines with whale blubber or something?

[sdduuuude]

Nor-LA-SD-guy

Do you think it would be easy to produce batteries without oil? You gonna lubricate the machines with whale blubber or something?

[sdduuuude]

Nor-LA-SD-guy

Do you think it would be easy to produce batteries without oil? You gonna lubricate the machines with whale blubber or something?

[Arraya]

Arraya, you are kidding right?

Let me break it down:

A barrel of oil contains 42 gallons. It can be made into about 20 gallons of gasoline (give or take, depending on the grade of the oil). Each gallon of gasoline contains about 36 kilowatt-hours of chemical energy (kilowatt-hours are the number of kilowatts, a measure of power, times the number of hours, yielding a measure of energy). An efficient internal combustion engine turns about one quarter of that energy into useful work, with the rest lost as heat. One horsepower is equivalent to about 3/4 of a kilowatt. However, one human working hard continuously can only put out about 1/10 to 1/5 of a kilowatt (compare the power output of a human to a one-horsepower horse). A recent article in Bicycling on the Tour de France showed that the average power output (during the several hours per day of the race) of a top-finishing bike racer, Floyd Landis, was 0.23 kilowatts, or about 1/3 horsepower, continuous. In a 75 minute time trial, the same cyclist was able to put out 0.38 kilowatts continuously — a full 1/2 horsepower!

The 20 gallons of gasoline made from one barrel of oil contains about 180 useful kilowatt-hours. If we divide that by say, 1/8 of a kilowatt — a generous continuous output for a fit person — we get 1440 hours of hard human work. Let’s assume that a person can put out this 1/8 of a kilowatt for 6 hours per day. That is, half of the output of a top Tour de France cyclist for a continuous 6 hours (not counting breaks) per day. This means that you would need 240 days to get 180 kilowatt-hours (or more, if you are a dimmer bulb), which is minimally equivalent to one year of 5-days-a-week very hard labor by a fit human. This boils down conveniently to: ONE BARREL of oil = ONE YEAR of hard human labor.

Couple this with the fact that for the first time in history we are about to have not enough go around. Yeah, I’d say it was underpriced, the market has just not figured it out yet.

[Arraya]

Arraya, you are kidding right?

Let me break it down:

A barrel of oil contains 42 gallons. It can be made into about 20 gallons of gasoline (give or take, depending on the grade of the oil). Each gallon of gasoline contains about 36 kilowatt-hours of chemical energy (kilowatt-hours are the number of kilowatts, a measure of power, times the number of hours, yielding a measure of energy). An efficient internal combustion engine turns about one quarter of that energy into useful work, with the rest lost as heat. One horsepower is equivalent to about 3/4 of a kilowatt. However, one human working hard continuously can only put out about 1/10 to 1/5 of a kilowatt (compare the power output of a human to a one-horsepower horse). A recent article in Bicycling on the Tour de France showed that the average power output (during the several hours per day of the race) of a top-finishing bike racer, Floyd Landis, was 0.23 kilowatts, or about 1/3 horsepower, continuous. In a 75 minute time trial, the same cyclist was able to put out 0.38 kilowatts continuously — a full 1/2 horsepower!

The 20 gallons of gasoline made from one barrel of oil contains about 180 useful kilowatt-hours. If we divide that by say, 1/8 of a kilowatt — a generous continuous output for a fit person — we get 1440 hours of hard human work. Let’s assume that a person can put out this 1/8 of a kilowatt for 6 hours per day. That is, half of the output of a top Tour de France cyclist for a continuous 6 hours (not counting breaks) per day. This means that you would need 240 days to get 180 kilowatt-hours (or more, if you are a dimmer bulb), which is minimally equivalent to one year of 5-days-a-week very hard labor by a fit human. This boils down conveniently to: ONE BARREL of oil = ONE YEAR of hard human labor.

Couple this with the fact that for the first time in history we are about to have not enough go around. Yeah, I’d say it was underpriced, the market has just not figured it out yet.

[Arraya]

Arraya, you are kidding right?

Let me break it down:

A barrel of oil contains 42 gallons. It can be made into about 20 gallons of gasoline (give or take, depending on the grade of the oil). Each gallon of gasoline contains about 36 kilowatt-hours of chemical energy (kilowatt-hours are the number of kilowatts, a measure of power, times the number of hours, yielding a measure of energy). An efficient internal combustion engine turns about one quarter of that energy into useful work, with the rest lost as heat. One horsepower is equivalent to about 3/4 of a kilowatt. However, one human working hard continuously can only put out about 1/10 to 1/5 of a kilowatt (compare the power output of a human to a one-horsepower horse). A recent article in Bicycling on the Tour de France showed that the average power output (during the several hours per day of the race) of a top-finishing bike racer, Floyd Landis, was 0.23 kilowatts, or about 1/3 horsepower, continuous. In a 75 minute time trial, the same cyclist was able to put out 0.38 kilowatts continuously — a full 1/2 horsepower!

The 20 gallons of gasoline made from one barrel of oil contains about 180 useful kilowatt-hours. If we divide that by say, 1/8 of a kilowatt — a generous continuous output for a fit person — we get 1440 hours of hard human work. Let’s assume that a person can put out this 1/8 of a kilowatt for 6 hours per day. That is, half of the output of a top Tour de France cyclist for a continuous 6 hours (not counting breaks) per day. This means that you would need 240 days to get 180 kilowatt-hours (or more, if you are a dimmer bulb), which is minimally equivalent to one year of 5-days-a-week very hard labor by a fit human. This boils down conveniently to: ONE BARREL of oil = ONE YEAR of hard human labor.

Couple this with the fact that for the first time in history we are about to have not enough go around. Yeah, I’d say it was underpriced, the market has just not figured it out yet.

[Arraya]

Arraya, you are kidding right?

Let me break it down:

A barrel of oil contains 42 gallons. It can be made into about 20 gallons of gasoline (give or take, depending on the grade of the oil). Each gallon of gasoline contains about 36 kilowatt-hours of chemical energy (kilowatt-hours are the number of kilowatts, a measure of power, times the number of hours, yielding a measure of energy). An efficient internal combustion engine turns about one quarter of that energy into useful work, with the rest lost as heat. One horsepower is equivalent to about 3/4 of a kilowatt. However, one human working hard continuously can only put out about 1/10 to 1/5 of a kilowatt (compare the power output of a human to a one-horsepower horse). A recent article in Bicycling on the Tour de France showed that the average power output (during the several hours per day of the race) of a top-finishing bike racer, Floyd Landis, was 0.23 kilowatts, or about 1/3 horsepower, continuous. In a 75 minute time trial, the same cyclist was able to put out 0.38 kilowatts continuously — a full 1/2 horsepower!

The 20 gallons of gasoline made from one barrel of oil contains about 180 useful kilowatt-hours. If we divide that by say, 1/8 of a kilowatt — a generous continuous output for a fit person — we get 1440 hours of hard human work. Let’s assume that a person can put out this 1/8 of a kilowatt for 6 hours per day. That is, half of the output of a top Tour de France cyclist for a continuous 6 hours (not counting breaks) per day. This means that you would need 240 days to get 180 kilowatt-hours (or more, if you are a dimmer bulb), which is minimally equivalent to one year of 5-days-a-week very hard labor by a fit human. This boils down conveniently to: ONE BARREL of oil = ONE YEAR of hard human labor.

Couple this with the fact that for the first time in history we are about to have not enough go around. Yeah, I’d say it was underpriced, the market has just not figured it out yet.

[Author]

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