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Submitted By dvkelley
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Diera Kelley

Business Economics GM545

Session-July 2012

Dvkelley@yahoo.com

Exercise 1 Everyone’s Gasoline Problem In 2003 average gasoline prices in the city of phoenix was a $1.52 and peaked to $2.11 per gallon. On July 30 a pipeline rupture, due to slow repairs, reduced the supply of gasoline causing dramatic price increases. With only two sources of gasoline, one from west Texas and the other from the west coast, phoenix was forced to pay the increased prices from west coast suppliers. Resorting to the consumers determinants of supply, preference would have to become a big constituent to make consumers adopt other modes of transportation. ” In the short run, a gasoline price increase of 10 percent would reduce consumer demand by just 2 percent, according to these studies. This suggests that gasoline prices in Phoenix would have had to increase by a large amount to reduce the quantity of consumers’ purchases by 30 percent, the amount of lost supply. Extrapolating from above, prices would have to increase by 150 percent. Phoenix prices did increase substantially – by 40 percent – but remained far below a 150 percent price increase, because Phoenix gas stations had succeeded in obtaining some additional gasoline supplies from the West Coast (Gasoline, 2012).” The law of demand states that price increase causes consumers to buy less which affects the determinants. The affect on the consumers normal good required them to find other substitute goods. Mode of transportation was changed to bikes, buses, carpool or even walking. The availability of the product was decreased to one source which caused a significant ripple of affects. Suppliers were forced to charge more to cover the supply cost while consumers were forced to adjust preferences and income. Consumers expected

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