supply and demand project 1 - Shameika Brown Business...

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Shameika Brown Business Economics GM545 Week 2: Production & Costs/Perfect Competition - TCO C - Project Paper 1(PP1) Spring 2009 [email protected] 1
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The recent history of gasoline pricing in my area (as of Friday, January 16, 2009), goes as follows: Austin National Today 1.679 1.809 Yesterday 1.668 1.801 One Week Ago 1.625 1.772 One Month Ago 1.565 1.672 One Year Ago 3.034 2.761 Unleaded Gasoline Average Prices in Austin, Texas Table 1 1 The price of gasoline at the pump is due to the one of the most fundamental concepts of economics, the basic principles of supply and demand. The relationship between demand and supply determines the price of gasoline. Prices are established by supply and demand. When reduction in supply occurs while demand rises, prices increase quickly. However, on the flip side of this when supply increases while demand decrease, prices decrease. It is interesting to see how the results of the consumers reaction to high gas prices (when the prices where expensive due to a limited number of suppliers but lots of demand) has now in essence contributed to the prices decreasing. Since prices had reached high levels, consumers have attempted to find alternative measures for transportations need and thus the demand for gasoline has decreased and caused a decrease in gasoline prices. Gasoline became less demanded because buyers didn’t have the desire to pay for it. The desire for gas lessens and this impacts the supply of gasoline. With the producers of gasoline being burden and having the surplus of gasoline, leaves the suppliers with limited options, lower the cost of thegasoline to generate some revenue or to not adjust the price and continue to experience the effects of not having it sell and thus losing revenues. This is the beauty of the free market system, consumers have the ability to assist with establishing the price of goods and services, Other factors that have contributed to the decrease of gasoline are the decrease in the cost of cruel oil. Since the oil is reined to produce gasoline, suppliers having to pay less for materials causd a decrease the price. In conclusion, economist Peter Beutel, the CEO of Cameron Hanover, explained on CNN that when gasoline prices spiked at more than $4 per gallon, consumption declined by more than 5 percent. The sum of 5 percent might not seem like much, but it means all the difference in the price of oil, and therefore, the price of gasoline. But as soon as gasoline prices plummeted, consumption increased. Furthermore, short-sighted people started 1 GasBuddy Organization Inc. "Chart: Unleaded Gasoline Average Prices." [Online image] 16 January 2009. <http://www.austingasprices.com/>. 2
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This note was uploaded on 03/19/2010 for the course ECONOMICS GM545 taught by Professor Hamidnoorani during the Spring '09 term at Keller Graduate School of Management.

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supply and demand project 1 - Shameika Brown Business...

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