...B Queena.Jenkins@yahoo.com Everyone’s Gasoline Problem Supply and demand is a major factor causing price fluctuation at the pump. The law of demand states all else being equal, as price falls, the quantity demanded rises, and as the price rises, the quantity demanded falls. This is an inverse relationship. If this statement was true concerning fuel then the consumer demand for fuel would decrease as the price increases. Obviously it is not. Supply must also be taken into account. The law of supply states that as prices rise, the quantity supplied rises, as price falls the quantity supplied falls. This is a positive relationship. Concerning fuel prices if demand rises or a disruption of supply occurs; pressure will be placed on the price. The inverse is also true, if a surplus exists or demand falls less pressure will be put on the price. Competition between retailers could cause prices to fluctuate. If competition does not exist and the retailer is the only player for miles the price may be higher. Oil, gold, wheat and other products are traded on a world market. The price of oil has risen because of its demand around the world. According to Gross (2010), The unrest and war in Iraq and other oil producing countries has also driven prices to an all time high of 101.5 per barrel. The determinate of change in resource price has shifted the supply curve to the left. The increase in the price of oil reduces the supply of gasoline. Gasoline prices in Georgia have risen by...
Words: 936 - Pages: 4
...Everyone’s gasoline problem The price of gasoline has varied widely from a current low of $3.98 a gallon to a high of $4.21 approximately ten weeks ago. In order to appreciate the reason for this fluctuation it is important to understand that the price of gas, like other commodities, is determined by the relationship of supply and demand. Since gasoline is a relatively inelastic product, the price alone does not have much bearing on the demand. Rather, other non-price determinants such as personal income and product availability play a bigger role in the demand for gas. The recent drop in prices has been largely attributed to a weakening of global demand; particularly the slowdown in Europe’s manufacturing industry. The unemployment rate in seventeen countries that use the euro has increased over the past few months and the United States has added fewer than expected jobs to the economy. These factors have led to a reduction in personal income thereby reducing the overall demand for gasoline. On the supply side of the equation, price increases earlier in the year were caused by supply interruptions in South Sudan, Syria, Yemen and the North Sea. This reduction in supply coupled with the tightening of sanctions in Iran reduced the number of petroleum sellers in the market causing a price hike at the pump. Consumer expectations of further supply interruptions led to the sustained higher prices. Being an inelastic product (few substitutes available), the actual retail...
Words: 422 - Pages: 2
...Everyone’s Gasoline Problem: Gas prices break down and vary on a daily basis primarily in direct relationship to the price of crude oil. 77% of the price of gas at the pumps is reflective to the price of crude oil. 12% is taxes and the other 12% is distribution and marketing. *(US 1) The following 2 charts show this direct relationship. *Chart Midwest Regular Conventional Retail Gasoline Prices Data from http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMRU_PTE_R20_DPG&f=W The price of crude oil internationally can be summed up best by the following chart: In summary the price at the pump we pay is directly related to the price of crude ole and as most of our oil supply is not generated domestically our prices vary according to international pressures and demands. Chapter 3, Question 14 Before Starbucks: Equilibrium QD = QS After Starbucks introduces premium blend: After the hard freeze in coffee beans: After the hard freeze the worlds premium coffee supply would experience a temporary shortage that for the would drive prices up until the supply can be increased. Chapter 3, Question 15 After the deep freeze on the orange crop: After the deep freeze the US’s Orange supply would experience a temporary shortage that for the would drive prices up until the supply can be increased. After Bush calls for an increase in ethanol production and the impact to the US corn crop: The demand would increase and...
Words: 334 - Pages: 2
...the price of gasoline is due to suppliers gouging and controlling prices. It seems that every trip to the gas pump is a life changing decision. Should I buy gas, or should I buy fewer groceries for the house? Most of us, however; will not sacrifice our gasoline. This is due to the fact that in the short run most of us are less demand sensitive to price changes than in the long run (Gotheil, 2005). On the other hand, if we are given enough time, and prices steady increase, we may begin to look into alternatives to driving. For example; drivers may opt for using public transportation or buy more fuel efficient vehicles. The demand for gasoline tends to be price inelastic. In an article written by, Tom Lehman, titled “Gas Prices Fact or Fiction: A Primer on Supply and Demand”, the author argues: One of the leading and most widespread theories about gasoline markets is that prices are controlled entirely by oligopolists and monopolists in the oil and gasoline industry, and that suppliers may charge whatever high price they prefer with impunity due to collusion and cartel agreements (Lehman, 2005). This argument may be valid to consumer, because of witnessing gasoline prices rising among gas stations simultaneously. Fluctuating prices of gasoline at the pump are not solely due to wholesalers and refiners controlling the market. Gas prices fluctuate due to supply and demand. Consumer demand for petrol tends to be less sensitive to price changes. Thus, gasoline is considered...
Words: 424 - Pages: 2
...Everyone’s Gasoline Problem. Why does this happen? Gasoline prices have been on the minds of almost everyone lately. Many times people dread having to go to the pump or wait until it is absolutely necessary to full up their gas tanks. Some have even changed the type of vehicle they drive in an attempt to help save them money at the pump. It would seem that gas prices are either always increasing or decreasing on a weekly and even sometimes daily basis Gas prices are affected by numerous factors including the demand and supply for gasoline on the market, the prices of crude oil on the world market, seasonal changes and local market competition just to name a few. In recent years, the world's appetite for gasoline and diesel fuel grew so quickly that suppliers of these fuels had a difficult time keeping up with demand. The demand for gasoline has changed over the years as more and more people globally have access to vehicular transportation. Countries such as China and India, each with a population in excess of 1 billion, are experiencing an expanding middle class that will likely use more gasoline over time1. Although the demand for gasoline has dramatically increased, its supply sources are still the same and are depleting. The quality of the oil is not the same in all locations, hence the higher quality oil cost a lot more. These costs then trickle down to the consumer. Crude oil prices are significantly influenced by the Oil Producing and Exporting Countries...
Words: 398 - Pages: 2
...Exercise 1: Question 1 Everyone’s Gasoline Problem Due to the supply and demand, gasoline has become a very dependant aspect of our lives. Supply is the amount of product available on the market and demand is how of the product is demanded by the consumers. In this respect, when demand increases so do the prices and supply decreases and when demand decreases, prices go down and supply will then increase. Through observing and researching, it shows that they are just as important in maintaining market equilibrium. Therefore retailers of wholesale products impact the economy when they increase prices such as what is being done with the gasoline at this time. Gas prices have seen some fluctuations over the past twelve months with a steady increase happening over the past six months in the state of Virginia and I’m sure the entire nation has seen the same. These fluctuations have been due to the economical crisis throughout the world. Some attribute the conflict in Iraq as the main problem. Other causes can stem from natural disasters, or political ties among leaders. In researching the price history of crude oil, it has fluctuated between $72 to $113 between January of 2011 and January 2012. However within that same time period Virginia’s prices fluctuated from $2.99 to $3.93 with the highest price being May of 2011. Seeing the prices on a continuous roller coaster can prompt consumers to be more mindful of their travel intentions. As consumers however, it is difficult for...
Words: 930 - Pages: 4
...In: Business and Management Econ 545 - Project 2 ECON 545: Course Project- Part #1 Instructor: Vernon Hobbs Date: Student: Exercise #1: Everyone’s Gasoline Problem. We are familiar with fluctuating prices of gasoline at the pump. Why does this happen? Research the recent history of gasoline pricing in your area, and attempt to relate any fluctuations you observe to documented supply and demand factors outline in our book. Be sure to cite any references used. Answer: Below is the supply and demand curve that we review when observing gasoline prices going up in the field. Basically under normal conditions we see the equilibrium price being where supply intersects demand at EQ and EP. However, as we experience issues where manufacturers end up not supplying as much fuel as before we see supply shift to the left and this is seen in the supply graph S2. We also see equilibrium price move up because of this from EP to EP1. An example of such an incident occurred during the Katrina Hurricane back in August 2005. The hurricane damaged the 30 oil platforms and the closure of nine refineries. This reduction of oil production reduced the amount of supply of gasoline for the nation. Thus rising the price of gas nationwide. Exercise 2: Chapter 3 Question 14. Assume initially that the demand and supply for premium coffees (one-pound bags) are in equilibrium. Now assume Starbucks introduces the world to premium blends, and so demand rises substantially. Describe what...
Words: 339 - Pages: 2
...Tracee Finley Business Economics GM 545 Spring Semester 2012 Tfinley73@yahoo.com Everyone’s Gasoline Problem Since September 2010, average monthly gas prices have risen 45 cents to $3.21 (February month-to-date), an increase of 16.4%. But during the past four years, there have been several periods where gas prices increased by even more substantial amounts. In 2008, gas prices rose 94 cents — or 33.4% — to $4.11 between February 2008 and June 2008. Gas prices also increased 63 cents from February to May 2006, 86 cents from February to May 2007, and 94 cents from December 2008 to June 2009. (http://www.edmunds.com/about/press/current-gas-price-hikes-dont-measure-up-to-recent-history-says-edmundscom.html). Prices fluctuate at the pump because of problems in the Middle East, natural disasters and government regulation. Crude oil also plays an important role in gas prices. Crude oil is a natural substance found underground that is used to produce fuel for cars, trucks, airplanes, boats and trains. As of February 2012, crude oil prices made up 72% of the price of gasoline. (http://useconomy.about.com). For every $1 increase in the price of a barrel of crude oil, U.S. consumers are likely to pay 2-1/2 more cents for a gallon of gasoline. The prices that we pay at the pump are determined by supply and demand. For example, if demand rises and supply falls, prices increase, and just the opposite when supply increases and demand decreases, prices will decrease. Being an...
Words: 335 - Pages: 2
...Eldred Merricks | BUSINESS ECONOMICS | GM545, Summer Term | | Emerricksrvp@gmail.com | 7/18/2011 | | Question 1 Everyone’s Gasoline Problem I think in order to understand what happens with gasoline prices one must first understand what elements make the retail price. The retail price is mostly comprised of taxes, refining, and crude oil. Crude oil is what we will focus on because it represents more than half of the cost associated with gas prices. [ (Wagner, 2011) ] As supply for crude oil tightens, it drives the price of gasoline higher. When OPEC decides to cut back on the production of crude oil it effects gas prices dramatically. Moreover, change in the demand for gasoline is primarily set by the mainly determinant of demand - the number of buyers using the fuel for transportation. For example if you look at my area and the growth in the number of people driving cars and trucks, has expanded in the last few years. As you look at the average price of gasoline in my area over the last 36 months, it went from approximately $3.98/gallon in July 18, 2008 to as low as $1.48/gallon in December of the same year to now $3.65/gallon. Although we have seen a relatively spike in prices for gas, I believe that it is the “change in quantity” demanded that has cause the prices in my area to fluctuate. For example, as prices go up people to spend less time on the road and more time at home. Our travel has mostly become a result of getting back and forth...
Words: 486 - Pages: 2
...Everyone’s Gasoline Problems Fluctuating gas prices can be caused by a number of factors. The price of crude oil and the cost of producing and marketing gasoline have greatly impacted the fluctuation of gas prices that we experience on a daily basis. There has been a significant increase demand for oil worldwide, including growth in other fast developing nations. These nations have significantly grown in the number of citizens who have access to automobiles, and their increasing populations have a strong impact on the amount of crude oil (Forbes, J). The demand for gasoline has increased significantly, due to economic growth. Also, seasonal changes can pose a serious impact on gas prices. Gas prices increase greatly during the holiday seasons and summer because American’s travel increases during these times. For example, the American gas demand increases in the summer season, resulting in higher gas prices during these times (Forbes, J). When the price of gasoline goes down people will buy more creating the demand but due to lowered price gasoline station owners will be discouraged to supply more of gasoline. If the price of gasoline goes up, demand will go down while the sellers will try to supply as much as they can. Just in the last month in Virginia Beach, Virginia, gas prices have risen 19 cents and over the last 3 months it has fluctuated within 49 cents (GasBuddy.com). Chapter 3 Q.14 When Starbucks introduces their premium...
Words: 621 - Pages: 3
...Question 1 : Everyone’s Gasoline Problem Gasoline prices are affected by the seasonality that is driven by the demand and supply patterns, as well as the local competition. The demand for gasoline increases during summer as people drive more due to favorable weather conditions. As the demand for gasoline increases, gas prices at the pump increases to earn more profits. From the graph, it is clear that the price of gasoline shot up to $4 a gallon in July 2008 (GasBuddy.com, 2011). This was mainly due to the increase in crude oil prices that was settled at $147 per barrel. However, in December 2008, the crude oil prices dropped to $40 a barrel as a result of which gasoline prices dropped to $1.69 a gallon. It seems that the record high prices encouraged people to drive less, which in turn drove down demand and subsequently, prices. Price increases generally occur when the world crude-oil market tightens and lowers inventories. Also, growing demand can sometimes outpace refinery capacity. In the spring, refineries perform maintenance, which can place a pinch on the gasoline market. By the end of May, refineries are usually back to full capacity (Bonsor, & Grabianowski). Local retail station competition also plays a considerable role in the fluctuation of gas prices. Since a neighborhood would have many gas stations, each station has to adopt equivalent pricing policy as any increase in gasoline price would cause the customers to migrate to an adjacent gas station...
Words: 670 - Pages: 3
...Business Economics GM545 January 2013 Everyone’s Gasoline Problem The fluctuation of gas prices occurs because of a number of factors; the price of crude oil, the price of manufacturing, the price of corn is all tied to the price of oil and the price we see at the pump for gas. In 2011, the United States consumed about 134 billion gallons1 (or 3.19 billion barrels2) of gasoline, a daily average of about 367.08 million gallons (8.74 million barrels). This was about 6% less than the record high of about 142.38 billion gallons (or 3.39 billion barrels) consumed in 2007,according to the Department of Energy ("How much gasoline," 2012). Of that, almost half is used for motor gasoline. The remaining is used for distillate fuel oil, jet fuel, residual fuel and other oils. Each barrel of oil contains 42 gallons (159 L), which yields 19 to 20 gallons (75 L) of gasoline. ("How much gasoline," 2012). So, in the United States, something like 178 million gallons of gasoline is consumed every day. The fluctuations of gasoline prices are a classic economic example of supply and demand in the market. If the demand for corn or oil increases or if a decrease in supply occurs, this then causes an increase in gasoline prices. On the other hand, if demand for corn or oil decreases there will be an oversupply of products and the prices will decrease. The seasons and US holidays may also have an impact on the price of gasoline at the pump. Americans travel more during the summer and over...
Words: 725 - Pages: 3
...Business Economics GM545 Summer B, 2010 Exercise 1: Everyone’s Gasoline Problem “In recent years, the world's appetite for gasoline and diesel fuel grew so quickly that suppliers of these fuels had a difficult time keeping up with demand. This demand growth is a key reason why prices of both crude oil and gasoline reached record levels in mid-2008. By the fall of 2008, crude oil prices began to fall due to the weakening economy and collapse of global petroleum demand, which had pushed oil prices to record levels earlier in the year. These factors helped gasoline prices drop below $2 per gallon of regular gasoline in late 2008 and early 2009, the lowest prices in three years (U.S. Energy Information Administration, 2010).” According to the U.S. Energy Information Administration (EIA), the single biggest factor in the cost of gasoline is the cost of crude oil. So what affects the cost of crude oil? As with most costs, the answer is supply and demand factors. “On the demand side of the equation, world economic growth is the biggest factor. One of the major factors on the supply side is the Organization of the Petroleum Exporting Countries (OPEC), which can sometimes exert significant influence on prices by setting an upper production limit on its members, which produce about 40% of the world’s crude oil. OPEC countries have essentially all of the world’s spare oil production capacity, and possess about two-thirds of the world’s estimated crude oil reserves. Oil prices...
Words: 788 - Pages: 4
...January 2011 1) Everyone’s Gasoline Problem Gasoline prices in Chicago have risen from $2.64 to $2.92 between September 2009 and September 2010(2) with a series of price changes in between. Prices change for a number of economic reasons. One such reason is supply and demand. Gas prices rise after 9/11 and after the start of the war with Iraq, it seems to rise when there is any major crises. Supply and demand plays a major part in the fluctuation of gasoline prices. The price of crude oil can and does influence the supply and price of gasoline. When the price of oil rises, the cost of supplying gasoline increases for petrol suppliers, reducing the quantity of crude oil demanded in gasoline production and potentially reducing the supply of gasoline. So its expected that a rise in the price of crude oil to lead to a rise in the price of gasoline. Even when crude oil prices are stable, gasoline prices can fluctuate because of reasons such as the season and local retail station competition. Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events, or domestic problems such as refinery or pipeline outages.(3) Crude oil prices are determined by worldwide supply and demand, with significant influence by the Organization of Petroleum Exporting Countries (OPEC). OPEC has tried to keep world oil prices at its target level by setting an upper production limit on its members.(3) also increase in demand for gasoline in the United States...
Words: 1124 - Pages: 5
...Everyone’s Gasoline Problems Fluctuating gas prices can be caused by a number of factors. The price of crude oil and the cost of producing and marketing gasoline have greatly impacted the fluctuation of gas prices that we experience on a daily basis. There has been a significant increase demand for oil worldwide, including growth in other fast developing nations. These nations have significantly grown in the number of citizens who have access to automobiles, and their increasing populations have a strong impact on the amount of crude oil (Forbes, J). The demand for gasoline has increased significantly, due to economic growth. Also, seasonal changes can pose a serious impact on gas prices. Gas prices increase greatly during the holiday seasons and summer because American’s travel increases during these times. For example, the American gas demand increases in the summer season, resulting in higher gas prices during these times (Forbes, J). When the price of gasoline goes down people will buy more creating the demand but due to lowered price gasoline station owners will be discouraged to supply more of gasoline. If the price of gasoline goes up, demand will go down while the sellers will try to supply as much as they can. Just in the last month in Virginia Beach, Virginia, gas prices have risen 19 cents and over the last 3 months it has fluctuated within 49 cents (GasBuddy.com). Chapter 3 Q.14 When Starbucks introduces their premium...
Words: 596 - Pages: 3
