Business Economics GM545
Summer Session 2010
Everyone’s Gasoline Problem
Gasoline prices in Hennepin County have risen from $ 2.283 to $2.69 over the last 12 months with a series of price fluctuations in between. Prices fluctuate for a number of economic reasons. One such reason is supply and demand. We have seen gas prices raise after 9/11 and more importantly after the start of the war with Iraq. So, why does supply and demand lead to fluctuation of gasoline prices? It is quite simple if we understand the laws of supply and demand. The relationship between demand and supply determines the prices of gasoline, prices are established by supply and demand. When reduction in supply occurs while demand rises, prices increase quickly. However, on the flip side of this when the supply increase while demand decrease, prices decrease. It is interesting to see how the results of the consumers reaction to high gas prices (when the prices were expensive due to a limited numbers of suppliers but lots of demand) has now in essence contributed to the prices decreasing. Since price had reaches high levels, consumers have attempted to find alternative measure for transportations need and this demand for gasoline has decreased and caused a decrease in gasoline price. Gasoline became less demanded because buyers didn’t have the desire to pay for it. The desire for gas lessens and this impacts the supply of gasoline. With the producers of gasoline being burden and having the surplus of gasoline, leaves the suppliers with limited options, lower the cost of the gasoline to generate some revenue or to not adjust the price and continue to experience the effects of not having it sell and thus losing revenues. This is the beauty of the free market system, consumers have the ability to assist with establishing the price of goods and services. Other factors that have contributed to the decrease of
Gasoline is the decrease in the cost of...