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Everyone's Gasoline Problem

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Queena Jenkins

Business Economics GM545

Spring 2012-Session 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 21 cents per gallon for a period of only 30 days. (Georgia gas prices, 2011). Demand has not decreased in the short run even though prices have risen. The cause is that fuel is inelastic.
Consumers do not have alternatives to fossil fuel. In the long run consumers could find alternatives to fossil fuel but for now we are at the

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