Everyone's Gasoline Problem

Everyone’s Gasoline Problem.

Gasoline prices have always been a topic of conversation. Most Americans can tell you the price of gas to a precise high accuracy; this is perhaps due to the fact that United States has the highest consumption of petroleum in the world. Gasoline has a long history of fluctuating prices and this is a result of the demand and supply of this commodity. Many factors account for the price fluctuation of gas, “The World Price of Crude Oil Is the Most Important Factor in the Price of Gasoline. Over the Last 20 Years, Changes in Crude Oil Prices Have Explained 85 Percent of the Changes in the Price of Gasoline in the U.S.” ( (Federal Trade Commission, 2005) This means that the prices of crude oil affect the levels of supply in regards to expected demand for products made from petroleum. The crude oil in relation to gas prices refer to one of the determinants of supply; cost of resources. When the price of crude oil increases around the world, refineries are forced to pay a more, this creates a ripple effect. Refineries are forced to increase their price to the gas stations and ultimately, drivers will pay more for their gas.

Another determinant of demand that greatly affects the price of gas is the expectation about future prices and product availability; ” If consumers expect shortages of certain products or increases in their prices in the near future, they tend to rush out and buy these products immediately, thereby increasing the present demand for the products.” (Stone, 2011) When natural disasters such as hurricanes are anticipated to approach a certain area, prices can rise due to the lack of availability of gas. For example, when super-storm Sandy hit the northeast it affected gas supply. The floods crippled the electrical supply forcing gas stations and refineries to shut down and fuel tankers stayed off the New York and New Jersey harbors. This affected the price of gas by “an average of 6.8 cents during the past week and 11.2 cents in Newark.” (Kahn, 2013), while the rest of the country experienced price drops in gas.

As a result, many other factors can affect the price of gas like embargos and tax and state regulations. Nevertheless, supply and demand of product are the main reason. Crude oil around the world will is the current leading determinant of price with all other factors adding or reducing price at a smaller scale.

Chapter 3: Question 14

The demand and supply of premium coffees are at an equilibrium price. An equilibrium is “the amount of product that consumers are willing and able to purchase is matched by amount that consumers are willing and able to sell” (Stone, 2011) The introduction of Starbucks premium blends having a substantial rise in demand will change the equilibrium price and quantity. The increase of demand will shift the demand curve to the right. As the market moves