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Introduction: This story describes the market for gasoline in 2001. After you have reviewed it, draw a graph to explain why the price per gallon rose during this period. Pay special attention to the comment about elasticity. Which curve does it describe, and what does it tell you about the shape of that curve?

ANNOUNCER

From ABC News, this is NIGHTLINE. Substituting for Ted Koppel and

reporting from Washington, Chris Bury.

CHRIS BURY

Perhaps it's human nature to look for something or someone to blame

when things aren't going well. Certainly, it's convenient. Consider

the cost of gasoline. No sooner did it creep towards $2 a gallon

than charges of price gouging began. And big oil, always a favorite

boogieman, fed right into the blame game. The nation's biggest oil

company, ExxonMobil, just posted the most profitable year in the

history of any corporation in the world, ever. So it's easy to cast

big oil as the villain. Too easy. In fact, there's plenty of blame

to go around. Take the gas-guzzling SUVs, minivans and pickups

Americans so love to drive. They now make up more than 40 percent of

all cars on the road. Whose fault is that? Then there are the

quirks of individual states. Oregon, for example, still doesn't

allow self-service stations. Illinois demands a certain percentage of

a corn product, ethanol, in its gas.

Tomorrow, when President Bush unveils his new energy plan, he is

expected to warn Americans that this country faces the most serious

energy shortage since the oil embargo of the 1970s. So on the eve of

that announcement, we thought we'd ask a simple question. Why are

gas prices so high? As NIGHTLINE correspondent Dave Marash reports,

the answer is not so simple.

3RD MAN

Gas prices are way too high. It's like 2.31 here, and it's

just--it's ridiculous.

2ND WOMAN

Every time there is a crisis with these gas companies or whatever,

we're--it's coming out of our pockets.

DAVE MARASH, ABC NEWS

(VO) It's the talk of the nation.

4TH MAN

This car here eats up a lot of gas. And I'm at the pump like at

least twice a week or maybe even three.

3RD WOMAN

I used to drive another car that cost me more to fill up, than this

time, but actually I got pretty lucky this time.

DAVE MARASH

(VO) A recent poll identified energy and the prices being paid for it

as the number one issue facing Americans today.

1ST MAN

The portion of our income that we've devote to gasoline, which used

to be kind of, you know, minimal and--and--and--and somewhat

frivolous, now seems to be significant.

DAVE MARASH

(VO) The latest figures on the average cost of a gallon of regular

across America today is $1.71, that's up 13 cents from just a month

ago, and 21 cents a gallon higher than the same gas cost a year ago

at this time. How come, you ask?

TOM KLOZA

Well, it is a simple supply and demand issue. But basically,

you're--you're looking at a product which has been adding 2 or 3 or 4

percent demand every year, and we haven't built any refineries in 25

or 26 years.

DAVE MARASH

(VO) Back in the 1970s when gas lines and shortages were common,

Americans cut back on their gasoline usage, and for almost two

decades, America had excess refining capacity. But in recent years,

lower prices and steady supplies brought back a generation of gas

guzzlers, especially those popular SUVs and minivans. These vehicles

have consistently pulled down the nation's fuel efficiency. Now,

with increased demand for gas, refineries are running at almost full

capacity, and they can get more for their product.

GEOFF SUNDSTROM

In the short term, there's very little elasticity of demand for

gasoline. Most of us have determined where we're going to live.

We've determined what car we're going to drive. We've determined

what activities we'll have our kids involved in after school. And so

the need to purchase gasoline and drive nationwide basis, we'll probably peak at around $1.75 a gallon

or so. I think that will happen probably in the next few weeks and

that prices will hang on there, perhaps plateau, but will be sharply

lower and come down sharply in the fall and the early winter. These

numbers are not sustainable.

DAVE MARASH

In the meantime, the AAA estimates that a year of regular gas

averaging a buck seventy a gallon would cost the average American

driver an extra $800. I'm Dave Marash for NIGHTLINE in New York.

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