LANSING - With gas prices dropping to their lowest level since May 2005, policymakers and industry experts are weighing the impact of the decline on consumers and the state's economy.

The average price halfway through October was $2.17 a gallon for regular unleaded, reflecting a continued decline after an all-time monthly average high of $3.01 in July.

The fluctuations in price are primarily affected by the trade in crude oil in the mercantile exchange market in New York, said Jim Rink, public relations officer for AAA Michigan.

"The market can react quite strongly to the news of the day, which helps establish the price of oil," Rink said.

Rink said gas prices follow a yearly cycle, including decreased demand after Labor Day.

"We tracked a similar trend last year in November, which is later because of the hurricanes," he said. "It's hard to predict what is going to happen, but I think we may have seen bottom and they will again be coming back up.

"I think the days of cheap gas are over," Rink said. "We may see seasonal and long-term fluctuations depending on the global economy, but it isn't going to get as low as what people like to see."

Regardless of what prices do in the future, gas prices when adjusted to the rate of inflation are actually lower than they were in the early 1980s, said Wendy Wysocki, associate professor of business and economics at Monroe Community College.

"If you adjust for inflation, gas prices are actually less than they were 25  years ago," she said. "We think it is high, but as a percentage of other prices gas has actually not gone up as much compared to everything else."

In 1981, the statewide average for a gallon of unleaded was $1.397 gallon then an all-time high, according to AAA. Adjusted for the rate of inflation, that would equal $3.29, a price above any monthly average for the last two years.

Wysocki said consumers' reactions to price changes vary.

"Gas is a tricky thing because it's deemed a necessity, so the response is different than to other things," she said. "Based on theory, if it's a necessity the amount people demand doesn't change a lot with price changes."

An industry belief that higher prices would result in decreased driving didn't materialize, Wysocki added.

"Statistics show that the higher gas prices didn't stop driving as much as was thought because people can't stop driving and because we don't have another substitute," Wysocki said.

The recent lowered gas prices have resulted in an increase in consumer spending on other things, she said.

According to a University of Michigan survey, consumer confidence in the economy increased to 85.4 percent from 82 percent in September because of the decline in gas prices.

But the future remains unpredictable, Wysocki said.

"Consumer spending has gone up with the lower gas prices, but the problem about gas prices is that's today, tomorrow may be different," she said.

From May to August, consumers in Michigan spent $4.8 billion on gas, and if prices remain at current levels, that would result in a $1.2 billon decrease for September through December.

The extra money spent for gas during the summer months has had an impact on Michigan's economy, said Jeffery Pillion, manager of energy data and security with the Public Service Commission.

"There's no real question that when you take a substantial amount of money out of people's discretionary spending to pay the higher cost of energy, they're spending less money on other things," Pillon said. "People respond to this by buying less expensive durable goods like cars, whose sales are down."

Wysocki said, declining prices may slow movement toward renewable energy solutions that decrease dependency on foreign oil.

Renewable energy includes grain-based fuels that come from Michigan's agricultural commodities. One type of renewable fuel is E85 ethanol, a blend of 85 percent ethanol and 15 percent gasoline.

"When prices went up in the 1980s, people looked for all kinds of alternatives, and then it died away because prices came back down again," Wysocki said. "I hope that we've learned that although prices may come down, in the long run it's a bigger issue than just price."

Lower prices not only impact the amount of discretionary spending by consumers but it affects the amount of money in the state's treasury, Pillon said.

The state receives 19 cents in tax revenue for each gallon of gas, as well as a 6-percent sales tax on the total cost of filling a tank, Pillon said.

"When you're selling less gallons, you're collecting less revenue based on the per-gallon amount, but with the sales tax component those revenues would increase so there's an offset," Pillon said.

Bridget Beckman, public relations director for the Michigan Department of Agriculture, said the state is pursuing renewable sources for energy.

"Regardless of the price, you are still using plant-based fuels which reduces our dependence on foreign oil and also supports our very critical agriculture industry here in Michigan," she said.

Many programs in the state encouraging producers and consumers to switch to biofuels, Beckman said.

These programs include a reduced tax on fuels that contain ethanol, grants to service stations that add ethanol-blend pumps and creation of a renewable fuels commission that will bring researchers and members of the agricultural and automotive industry together to recommend solutions to policymakers.

"We're working on all fronts and we're not letting up," Beckman said.