Gasoline Prices Assignment Gm545

Project 1

Business Economics GM545

July 2013

Everyone’s Gasoline Problem

Gasoline prices in NYC have risen from about 3.85 to about $4.00 over the last 12 months with a series of price fluctuations in between. “Retail gasoline prices are mainly affected by crude oil prices and the level of gasoline supply relative to demand. Strong and increasing demand for gasoline and other petroleum products in the United States and the rest of the world at times places intense pressure on available supplies. Even when crude oil prices are stable, gasoline prices fluctuate due to seasonal demand and local retail station competition.”(www.eia.gov). This is especially true during the summer months when travel is at its peak.

Prices fluctuate for a number of economic reasons. One reason being the concept of supply and demand. Understanding the law of supply and demand will help to better explain why this change in price happens.

The best definitions for supply and demand were these that I’ve retrieve from investopedia.com and these definitions are:

“The law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.”

“The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more.”

With these definitions we can understand how when a reduction in supply occurs...