Exercise 1 - Everyone’s Gasoline Problem
It seems like gas prices change on a daily basis for the better or for worse. I spent the week studying the gas prices in my area as I drove by different gas stations. It’s amazing how the prices can different from area to area, company to company, and even the same company but just a mile few miles apart. The simplest answer is supply and demand but what actually goes into the decision making part of what gas prices should be?
Research shows that 50% of the price of gas is based on the price of crude oil. This is what is refined and turned into gasoline. (Energy: demand vs. supply) Companies have to purchase crude oil to make into gasoline. This cost of purchasing the oil and refining it is then passed down to the customer. As the demand for crude oil or gas goes down, so do the prices. This can happen during recessions or when people travel less. As the demand increases, prices can go up, like during the summer when consumers travel more.
Location can also contribute to the price of gas. Some locations can tend to have lower prices because of competition. They’re considered perfect competitive firms because they have to have the best price for the customer to want to come in and purchase their gas. I usually use the Safeway gas pumps instead of going across the street to the Arco station because I can receive a discount but the price is usually always three to five cents less than the Arco station.
As I continue to drive to work, I noticed only one gas station was within a close enough range and seemed to have a higher gas price by 10 cents or more. They have a type of monopoly on the gas market because they have few if any competitors. (Energy: demand vs. supply) The gas station is always busy because it’s also the most easily accessible on the way to and from work. Distribution costs can be another factor