Exercise 1, Question 1 Spending at least $40 to fill up a tank of gas has become the norm these days. As gas prices in the Midwest inch toward the $4-per-gallon mark, it’s hard not to feel for those who have to make long commutes on a daily basis. The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits of refiners, marketers, distributors, and retail station owners (A Primer on Gasoline Prices). The marketplace forces of supply and demand determine the price of fuel. If demand grows or if a disruption in supply occurs, there will be upward pressure on prices. By the same token, if demand falls or there is an oversupply of product in the market, there will be downward pressure on prices. For example, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and fall in the winter. Good weather and vacations cause U.S. summer gasoline demand to average about 6% higher than during the rest of the year (A Primer on Gasoline Prices). Those principles apply at the service station level as well. If a retailer prices its gasoline too high, and without regard to competition, the retailer's customers may take their business to another station with lower prices. If a retailer loses enough volume, the retailer may then reduce prices in order to retain its customers (The Price of Fuel).
Chapter 5, Question 17 A rise in demand for potato chips is more responsive to demand in the short/long run since potatoes are more easily produced since they are used for multiple products. Whereas, the demand for computer chips rise, supplies are more likely to spend more time to respond. This is because the