Economics 545: Microeconomics Course Project

Microeconomics Project Paper
Course Project 1
Economics 545
Summer 2014 Session B
Prof. William Mapp
Patricia Shomo
September 13, 2014

Situation C Last night about 7pm, I went to fill up on gas at the closest gas station by my home in Merrillville, Indiana. The Speedway gas station had gas for $3.49 a gallon for regular unleaded gas. Midgrade gas was $3.69 a gallon, Premium was $3.89 a gallon, and Diesel was $3.89 a gallon. I always try to fill up before the work week, as I do not want to get stuck in Chicago, Illinois where I work, and have to fill up on gas. Gas prices are dramatically different in my 40 mile radius. Today, gas prices in Chicago off my exit for work are $3.99 a gallon for unleaded gas at the Marathon gas station
I am going to have to guess and estimate how many gallons of gas where sold a day in Merrillville, Indiana, and for the price per gallon, I used the high and low price per gallon for September 2014 from GasBuddy (the chart is located in the addendum). Let’s say the Average quantity sold a day for the month of June: Average quantity = 12,000 + 18,000/2 = 15,000. Now the Average price in Gary, Indiana for September 2014: Average price = $3.49 + $3.59/2 = $3.54. Now calculate the percentage change in quality demanded and percentage change in price for demand curve D1: Percentage change in quantity demanded = (18,000 – 12,000/ 15,000)*100 = 40%, Percentage change in price = ($3.49 - $3.59/$3.54)*100 = -2.82%. Then divide the percentage change in quantity demanded and percentage change in price to calculate price elasticity of demand curve D1: Price elasticity of demand = 40%/-2.82% = -14.18. So elasticity is greater than 1 in absolute value, D1 is elastic between those two prices. We now have to calculate the price of elasticity of demand curve D2. I will again have to guess and estimate how many gallons of gas where sold a day, and for the price per gallon, use again the prices from GasBuddy. Percentage change in quantity demanded = (15,000 – 12,000/ 13,500)*100 = 22%, Percentage change in price = ($3.49 - $3.59/$3.54)*100 = -2.82%. Now we can calculate the price elasticity
There are many factors that will affect his success. Crude oil is a commodity and prices are not set by the establishment, they are set by the market and what it is trading it. Currently it is a necessary commodity that if you have a vehicle it is extremely necessary. Even if you take public transportation, gas prices would still affect the consumer, because if gas prices remain high after a certain period, you know they will request a price increase adjustment for bus passes and single trips. Now how much the consumer uses is all up to how much the consumer wants to spend or adjust their budget. Gas prices fluctuate from one day to the next and is never a set price. For example, if I want to get to work and I am low on fuel in my car, I have to fill up on gas regardless on the price of gas. I could search around to try to locate the lowest priced gas in my area, but by doing that you also waste precious gas. I would have to adjust my budget to either lower it or cut something out that isn’t necessary. Instead of pizza every Friday, I would have to cut back to every other week or none at all. Not many consumers have the luxury of not using gasoline at all. Gasoline is used in many different gas powered tools, and in the farming industry. I would suggest he start off with opening one gas station with a convenience store in a high population and