If we are like most consumers - that prices are controlled...

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If we are like most consumers, we tend to believe the price of gasoline is due to suppliers gouging and controlling prices. It seems that every trip to the gas pump is a life changing decision. Should I buy gas, or should I buy fewer groceries for the house? Most of us, however; will not sacrifice our gasoline. This is due to the fact that in the short run most of us are less demand sensitive to price changes than in the long run. On the other hand, if we are given enough time, and prices steady increase, we may begin to look into alternatives to driving. For example; drivers may opt for using public transportation or buy more fuel efficient vehicles. The demand for gasoline tends to be price inelastic. In an article written by, Tom Lehman, titled “Gas Prices Fact or Fiction: A Primer on Supply and Demand”, the author argues: One of the leading and most widespread theories about gasoline markets is
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Unformatted text preview: that prices are controlled entirely by oligopolists and monopolists in the oil and gasoline industry, and that suppliers may charge whatever high price they prefer with impunity due to collusion and cartel agreements (Lehman, 2005). This argument may be valid to consumer, because of witnessing gasoline prices rising among gas stations simultaneously. Fluctuating prices of gasoline at the pump are not solely due to wholesalers and refiners controlling the market. Gas prices fluctuate due to supply and demand. Consumer demand for petrol tends to be less sensitive to price changes. Thus, gasoline is considered price inelastic. In otherwords, when prices change, consumers’ buying habits change proportionately less than the accompanying change in price (Lehman, 2005)....
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