Everyone’s Gasoline Problem

Econ545 Paper

Business Economics GM545 Spring 2013

Everyone’s Gasoline Problem. We are all familiar with fluctuating prices of gasoline at the pump. Why does this happen? Research the recent history of gasoline pricing in your area, and attempt to relate any fluctuations you observe to documented supply and demand factors, as outlined in our book. By the end of the 6-week period of November 19th –December 31, gas prices in Chicago had risen significantly. In it’s bi-monthly newsletter at the beginning of January 2011, the Lundberg Survey, a report which tracks gas prices, points to Chicago for the highest gasoline prices nationally topping the charts at an average of $3.35 per gallon for regular. With Illinois already high, 58.8 cent gas tax coupled with the city of Chicago’s gas tax of 50 cent a gallon any nationwide increase in gas prices will be even more significant in Chicago (1). Gas prices vary widely from state to state based largely on local taxes placed on the inelastic product. But prices have been trending higher nationwide after an increase in the price of crude oil, the main ingredient in gasoline (2). In Chicago, just as in the rest of the U.S., there was an increase in demand for oil during the period of November 19th –December 31, 2010. This increase in demand is illustrated by the decrease in U.S. crude oil inventories. Between the mentioned period of 6 weeks, crude oil inventories declined by 21.84 million barrels (3). These declines were a result of increases in gas consumptions, which also translate into increases in demand. The increase in inventories doesn’t stop with the U.S. Emerging market economies such as China and India contribute to the increase in oil demand worldwide. With increases in the consumption of gas follows increases in the price of gas. In order to reach the equilibrium price, the “invisible hand” moved prices up as the more gas was consumed. The increase in consumption in Chicago during the period of November 19th –...