Question

In: Operations Management

Scenario: The price of gasoline in all its forms (unleaded to premium) has suddenly doubled. What...

Scenario: The price of gasoline in all its forms (unleaded to premium) has suddenly doubled. What will you do? Answer the questions below and number your responses so I know what question you are answering.

  1. How, if at all, will your driving habits/gasoline usage habits change?
  2. What factors will influence you?
  3. How do you use gasoline? Work? Socializing? Getting groceries/supplies?
  4. What portion of your discretionary income do you currently spend on gas?
  5. How would that change with the price increase?
  6. How would your friends/family influence you?
  7. Are there any substitutes/alternative for gas usage available?
  8. Would timing of the price increase change your responses? Vacation, concert,   etc?

Solutions

Expert Solution

1) With increase in price, the ability to consume same amount of gasoline will decrease. Gasoline usage has to be reduced in order to keep spending limit under budget, or else budgeted spend on gas has to be increased. However, with fixed income it may not be possible to increase budget on gasoline, hence gas usage has to be curtailed.

2) Factors that will influence usage of gasoline are availability of other alternatives to gasoline, availibility of other modes of transport, necessity of transportation itself, availibility of money for extra gasoline etc

3) Gasoline is used for multiple uses such as going to work, recreational activities, getting supplies and essentials etc. Some of the requirements are discretionary and can be avoided.

4) Normally, 10-20% of discretionary income should be spent on gasoline. If actual spend is more, it can be cut back and saved.

5) Due to price increase, discretionary spends will be reduced. However, total money spent will be same but quantity of gasoline received will be less and that will be used fully for essential and mandatory activities only.

6) Due to cut back on socialising, less interaction physically may happen with friends/family.

7) Alternative options for gas usage such as public transportation, cycles or walking for shorter distances may be preferred.

8) Timing of price change is important. During some big event such as vacations, concert etc, reducing usage may be harder. Then the total usage of gas will be same and monetary spending will be higher than normal circumstances.


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