Gm 545 Project Paper 1

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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 the holidays, and the price of fuel increases during these times to meet the demand and maintain the market equilibrium.

Chapter 3 Question 14

Assuming that the demand and supply for premium coffees are in equilibrium, the price will remain more or less constant. If no significant expectations emerge in the market, we expect for the supply to also remain constant. If Starbucks introduced the world to premium blends, this would cause a positive shift in the demand curve. Fro those...
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