Baker Business Michele Economics GM 545 Summer A 2009 Project 1 Email: michelebaker26@yahoo.com

1 Gasoline Prices Supply and demand have played a large part in the increase of gasoline prices the nation has experienced lately. The Law of Demand clearly indicates that the rise in demand for gasoline will lead to an increase in prices. This has been a topic that seems to continue coming up in conversations both in the classroom as well as everyday interaction as it seems to be affecting everyone. Some cannot afford to put gas in their SUVs anymore because the prices have been fluctuating and continuously increasing over the last couple of years. Even though I have read several research studies and articles on this before, I found a very interesting point that I had not previously heard of or thought about. I have often wondered what we as Americans can do to reduce demand of gasoline, since the increase in demand has obviously led to the rise in petroleum prices. However, this study shows that the problems may be stemming from the increase usage in both China and India to power their cars and factories. Unfortunately, there is nothing we can do to reduce the demand that other countries are creating. The article suggests that really the only thing that Americans can do is to decrease their personal demand for the fuel by getting rid of the gas guzzling SUVs or turning to alternative sources of transportation. Here in Arizona one of the skeptics of the gasoline price hike was Attorney General Terry Goddard. He personally looked into the price spike here in Arizona since we do not utilize the Gulf Coast as a source of our fuel. Instead we get it from California. He found that there were no laws violated. However, since the recent gas price problems, the City of Phoenix has built a light rail to help with the increase demand for public transportation. Apparently having supply and demand dictate the prices of gasoline is better than the alternative (Krantz, 2006). If prices were too low, supply would be scarce. So if the government imposed a price cap, there may not be enough gasoline to meet the demand and therefore equilibrium could not be achieved. On the other hand, both an increase in demand and a disruption in supply can lead to higher prices. Chapter 2 Web based question 1 On 7-16-09 at 1740 hours Arizona time, there were 16,622 loose diamonds for sale on ebay.com. The lowest price is an auction with a starting bid of $0.99 and free shipping. The lowest buy it now price looks to be $2.99 with free shipping. The few that were below that price had a few dollars tacked on for shipping. The highest price was for a 3.09 ct green diamond priced at $1,300,000.00. The smallest I found listed is .008 ct and was listed as 1mm in size. It was listed for $1.49 with $2.99 shipping. The largest I found a 27.59 ct yellow diamond. It is prices at 1,250,000.00. 2 When there are many buyers and sellers acting independently in a market, no one can dictate the price of the product because others can undercut that price. However, on eBay, when there is money to be made, more people begin to sell that product. The result is that as competition increases and as the supply sold on eBay of a product is higher than demand, the price will fall until there is no profit to be made (Getter, 2008). One example that comes to mind is selling tickets to theme parks on eBay. Local residents can buy tickets at a discounted price offered by the theme park. They can then turn around and sell them on an eBay auction or even put a buy it now price that would still give the out of state buyer a deal. However, as the number of local residents that realize this phenomenon increases, the prices will be forced down to benefit the buyer, however this may cause sellers to lose interest due to lack of profitability. There is also a significant level of competition among buyers on eBay. Similar to being one of the lucky people to own an item that is rare in quantity, getting a great deal on a product of the consumers choice is very important to the shopper. The best example I can think of is the new pennies that are being sold by the mint. My dad was only able to buy one set of the first design that came out before they sold out. Since there was limited quantity made and sold through the mint, there was a larger demand for them. My dad was able to sell them for four times what he paid for them. However, the mint realized they could make more money by producing and selling more of the second design, so the supply increased. Subsequently demand fell, because people that were forced to turn to eBay to purchase the first set once the mint sold out, were able to buy the second set directly. The competition among buyers for the first design on eBay auctions was much higher so the prices were much higher. Now that the competition is not as prominent, the prices have fallen maybe to twice as much as you can buy them from the mint. I would assume this trend will stay until the mint sells out of this set as well. I can only assume that the diamonds sold on eBay will be affected by similar factors as the pennies and the theme park tickets. The higher the supply, the lower the price and profit made by the sellers. If there are profits to be made, the number of sellers who post auctions for their loose diamonds will continue to rise. This will cause a greater competition and force the prices down. The rarer the diamond, the more competition there will be among the buyers to get the best deal possible. Chapter 18 Question 1 The current price of gold listed on goldprices.com on 7-16-09 at 1753 hours Arizona time is $936.70. The previous day it closed at $939.50, so there has been a $2.30 3 decrease throughout today. The highest price over the last 12 months was $993.20 in January 2009 and the lowest was $709.50 in November 2008. Assuming that the fluctuations accounting for a $283.70 difference between November and January are due to changes in demand, this would make the prices of gold elastic. Elasticity is the consumers response to changes in price of a product or service. As a result the indication of these changes is that the demand for gold was higher in January than it was in November. This may actually be a fair assumption considering consumers interested in gold spiked, when the market price shot up in 2001 from $250 per ounce to over $600 per ounce. (Paul, 2006) Another reason that the demand for gold may have gone up is because purchasing gold as an investment is protection or insurance against governments inclination to lower its currency (Paul, 2006). Since the value of gold does not actually change, it is almost strange that people would turn to this as an investment. It is a gamble. The likelihood that you will earn interest by putting your money into an interest baring account is higher than the bet that the resale value of gold will steadily rise. Therefore it is similar to burying money in your backyard in a coffee can. Still for the sake of argument, if demand for gold goes up the price will follow suit. Since precious metals are looked upon as being a status marker or indicate ones level of wealth, it would only seem logical that the demand for gold would remain high. That being said the question remains why did demand rise so high in January? My personal observation is that the demand for many things rises at the beginning of the year. I worked in retail for many years and there is one constant you can count on. Many people will get their tax returns as soon as they can which in many cases is January. Everyone will use this money differently, but if someone is inclined to buy into either the idea that gold is a good investment or an indication of wealth, it is likely when they have a larger portion of money to utilize their demand for gold will go up. Gold also has many other uses beyond the retail setting I worked in retail selling jewelry. It is used for dental instruments and actually accounts for about ten percent of all gold usage. It is also used to decorate other things besides peoples ears and necks such as the tops of some state capital buildings. With the large array of uses, it is almost inevitable that the demand for such a precious commodity would continue to rise. I found it extremely interesting that even our state capitals would be decorated with gold (Istvan 2009). This almost illustrates the belief that it is related to wealth or ones self worth when even our government uses it to dress up our nations capital structures. 4 Worked Cited (2008). The Price of Fuel. Retrieved 07. 16, 2009, from Chevron Corporation. Web site: http://www.thepriceoffuel.com/whataffectsfuelpricing/. (2009). Diamonds (natural). Retrieved 07. 16, 2009, from eBay. Web site: http://www.ebay.com. (2009). Live Spot Gold. Retrieved 07. 16, 2009, from Kitco. Web site: http://www.goldprices.com. Getter, S. (2008). Perfect Competition and eBay Sellers. Retrieved 07. 18, 2009, from Towson University. Web site: http://sethgitter.blogspot.com/2008/05/perfect-competitionand-ebay-sellers.html. Krantz, M. (2006). Gas Prices: It's Supply and Demand, and You Wouldn't Want the Alternative. Retrieved 07. 16, 2009, from USA Today. Web site: http://www.usatoday.com/money/perfi/columnist/krantz/2006-05-09-gasolineprices_x.htm Istvan, J. (2009). The Scrooge Effect: Demand for Gold and Its Relationship to Inflation Rates of the US Dollar. Retrieved 07. 18, 2009, from Socyberty. Web site: http://www.socyberty.com/Economics/The-Scrooge-Effect-Demand-for-Gold-andIts-Relationship-to-Inflation-Rates-of-the-US-Dollar.520379 . Paul, R. (2006). What the Price of Gold Is Telling Us. Retrieved 07. 18, 2009, from United States Congress, Texas. Web site: http://www.house.gov/paul/congrec/congrec2006/cr042506.htm . 5
Find millions of documents on Course Hero - Study Guides, Lecture Notes, Reference Materials, Practice Exams and more. Course Hero has millions of course specific materials providing students with the best way to expand their education.