Everyone’s Gasoline Problem
Retail gasoline prices fluctuate largely due to crude oil prices and supply and demand. Demand for oil is high with an ever-increasing demand in the United States and throughout the world, supply and production is limited and due to the ongoing debate on offshore drilling for new wells control of gasoline prices appear to be unattainable. (2)
Crude oil prices are determined by worldwide supply and demand, which is why as countries around the world developing rapidly, the demand for and price of gas increases rapidly. Natural disasters and Political conflicts in major oil producing regions such as Saudi Arabia, Iran and Iraq can also affect the price of gas. The Organization of Petroleum Exporting Countries (OPEC) also has significant influence over the price of crude oil because its members produce over 40% of the world’s supply of oil and own more than two-thirds of the world’s estimated oil reserves.(2) Proximity of Supply
States further away from the Gulf Coast (where almost half of the gasoline in the U.S. is produced) see an increase in oil cost due to the fees added on for transportation of the gas from the oil refinery. Due to the distance the oil has to travel the West Coast and Rocky Mountain regions usually pay more for gas. (2) Competition
Points of distribution also effect gas prices, areas with multiple distribution points compete for business thereby constantly trying to drop or match the gas price by mere pennies on the dollar(2). In large cities such as my hometown Chicago, prices are higher due to Illinois tax rate causing some Illinois residents to travel to a neighboring cities/state with lower taxes and better gas prices such as Hammond, IN. Chicago area average gas price is currently $4.09 per gallon while its neighboring city Hammond, IN is paying $3.62 per gallon. The current USA average price per gallon is
Chapter 3, Question 14
Once a market is in equilibrium and the forces of supply and demand balance one another out, the market will remain there unless an external factor changes. But when the supply curve or demand-curve shifts (some determinant changes), equilibrium also shifts, resulting in a new equilibrium price and/or output. The introduction of a premium blend by Starbucks will cause demand to increase. The equilibrium will shift upward causing the equilibrium to move out of balance because of the introduction by Starbucks of the new premium blend. A higher equilibrium price/quantity could results if the premium blend is a success among consumers. (Stone, 2011)
A hard freeze of Brazil’s premium coffee will affect supply greatly causing a decline in supply, resulting in a leftward shift on the supply curve. The price of high-end coffee will increase as supply declines. As quantity increases, competition will increase, supply will increase and equilibrium will be reached as long assuming force majeure (freeze/weather) does not continue to affect Brazil’s supply of premium coffee. (Stone, 2011)
Chapter 5, Question 17
Potato chips manufacturers should be able to act quickly to the demand increase assuming potato crops have grown fairly well, while computer chip manufacturers will take more time to meet the increase in demand due to the complex nature of creating a computer chip. Both producers will increase production timeline adding more manpower, equipment and methods of distribution. The computer chip manufacturer may strike a deal with a third party manufacturer to assist in creating more chips quickly. Both manufacturers will see an increase in competition as demand increases.
Both manufacturers have to supply a product that meets consumer demands in a timely manner to avoid losing market share and keep consumer demand up. (Stone, 2011) Due to the increase in demand price may increase to cover cost of increase production timeline along with the opportunity to increase profit set on by consumer demand. Both manufacturers will seek out a plan of action to act quickly should a increase in demand happen again, such as increasing the potato crops and or finding a an extended storing option for the potato manufacturer and an increase in temporary and or a creation of a production line with more computer operated duties and less human man power necessary.
1. Stone, G. (2011). Core Economics (1st ed). Worth Publishers. Retrieved from http://devry.vitalsource.com/books/9781464107627/page/51
2. Retrieved from http://blog.allstate.com/battle-at-the-pump-fighting- fluctuating-gas-prices/
3. Retrieved from www.gasbuddy.com