_Project_1 - Exercise 1 Chapter 2 Question 1 Everyone's...

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Exercise 1: Chapter 2, Question 1: Everyone’s Gasoline Problem. The most significant driver the in the price of gasoline is the price of the main raw material i.e. crude oil. Over the last year oil and thus gas prices have fluctuated, but increased on an average owing to the following factors. 1.) Increase in Demand: According to OPEC (p.25, OPEC Monthly Oil Market Report, December 2010) the combination of “massive governmental stimulus plans around the world … a faster-than -expected recovery in the world economy and the very low baseline in 2009” contributed to oil demand rising in 2010 by 2.2 million barrels/day according to the EIA http://www.eia.doe.gov/emeu/steo/pub/contents.html ). As a result of the increased demand gas prices nationally have increased by 18.4%, a trend that we in Chicago have also experienced firsthand http://chicagogasprices.com/retail_price_chart.aspx ). Both OPEC and the EIA expect the trend of rising demand and hence prices to continue into 2011 and anticipate that the increases in demand will be driven largely by developing countries. 2.) Controlled Supply: Close to 80% of the world’s oil supply is controlled by 12 countries that make up OPEC. They have formed an oligopoly that controls prices by controlling the supply of oil. Therefore although world demand for crude oil has risen sharply supply has not risen at the same
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This note was uploaded on 03/10/2012 for the course ECONOMICS GM545 taught by Professor Hamidnoorani during the Spring '09 term at Keller Graduate School of Management.

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_Project_1 - Exercise 1 Chapter 2 Question 1 Everyone's...

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