Gm545 Project 1

Topics: Supply and demand, Petroleum, Inverse demand function Pages: 3 (846 words) Published: March 22, 2012
Business Economics GM545
March 2012 Session

Everyone’s Gasoline Problem
Gasoline prices have been fluctuating in the South Holland area just like in many other cities in America. Below is a breakdown of the gasoline prices at a few stations in the community. Car owners are price takers and do not influence the price of gasoline despite how much is supplied or demanded. These gas prices can fluctuate at any moment in a given week. The Mobil and the Marathon stations tend to compete with each other because they are very close. If there is a small price difference, the demand for it will increase dramatically. Petroleum product prices tend to move along side of crude prices. Gas Company| Regular| Plus| Premium|

Mobil| 4.279| 4.329| 4.429|
Marathon| 4.299| 4.399| 4.499|
7-Eleven| 3.979 Lowest Price| 4.279| 4.379|
Phillips 66| 4.099| 4.239| 4.339 Lowest Price|
7-Eleven| 4.099| 4.229 Lowest Price| 4.399|

Crude oil and petroleum product prices can be affected by events that have the potential to upset the flow of oil and products to market, including geopolitical and weather-related developments. These types of events may lead to actual disruptions or create uncertainty about future supply or demand, which can lead to higher volatility in prices. The volatility of oil prices is inherently tied to the low responsiveness or "inelasticity" of both supply and demand to price changes in the short run. Both the stock of oil-using equipment and oil production capacity are relatively fixed in the near-term. It takes years to develop new supply sources or vary production, and it is very hard for consumers to switch to other fuels or increase fuel efficiency in the near term when prices rise. Under such conditions, a large price change can be necessary to re-balance physical supply and demand following a shock to the system.

Chapter 3, Question 14

Assuming that the demand and supply for premium coffees are in...
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