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# Everyone's Gasoline Problem. We are all familiar with fluctuating prices of gasoline at the pump. Why does this happen?

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Introduction

Question 1: Everyone's Gasoline Problem. We are all familiar with fluctuating prices of gasoline at the pump. Why does this happen? Research the recent history of gasoline prices in your area, and attempt to relate any fluctuations you observe to documented supply and demand factors, as outlined in our book. Be sure to cite any references used. Answer: Gasoline prices in Orange County have risen from \$1.94 to \$2.34 over the last 12 months with a series of price fluctuations in between. Prices fluctuate for a number of economic reasons. One such reason is supply and demand. We have seen gas prices rise after 9/11 and more importantly after the start of the war with Iraq (See Figure 1). So, why does supply and demand lead to fluctuation of gasoline prices? It is quite simple if we understand the laws of supply and demand. In order to understand this we must first define both supply and demand and how they work. Supply is defined as a schedule or curve showing the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period. The law of supply states that as prices rises, the quantity supplied rises and vice versa. Demand is defined as a schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time. ...read more.

Middle

The lowest price? Assume the price fluctuations observed resulted exclusively from changes in demand. Would the observed price changes have been greater or less if the gold supply had been elastic rather than inelastic? Explain. Answer: The price of gold as of end of trading on July 23, 2004 was \$389.90 per ounce (See Figure 3a). The price at the beginning of the trading day was \$394.40. The difference between the price at the start of the day and end of the day shows the change in price. During the trading period for July 23, 2004 there was a \$4.50 (\$394.40-\$389.90) drop in the price of gold. According to data from www.Kitco.com the highest price of gold over the last 12 months was \$427.25 on April 1, 2004 and the lowest price was \$347.50 on August 4, 2003 (See Figure 3b). Price elasticity of supply is defined as the responsiveness (or sensitivity) of producers to respond to a price change. The amount of price elasticity of supply depends on how easily and quickly producers can shift their resources between alternate uses. In the case of gold we can see that gold is highly inelastic, as producers cannot react quickly to changes in demand due to the complicated mining processes and costs involved. This is primarily the reason gold mining companies cannot be shut down easily. In this situation price decreases do not produce a significant decrease in supply. ...read more.

Conclusion

allied product manufacturing 2002 1,515 -18.592% 7,207,696 1,230,811 45,706 1997 1,861 10,876,510 1,832,341 85,115 321 Wood product manufacturing 2002 16,912 -2.620% 89,167,780 15,910,410 535,204 1997 17,367 88,470,180 14,319,193 570,034 322 Paper manufacturing 2002 5,463 -6.902% 151,370,537 20,678,028 475,828 1997 5,868 150,295,890 22,311,971 574,274 323 Printing and related support activities 2002 37,168 -13.287% 95,553,610 25,717,107 718,075 1997 42,863 97,485,138 26,022,991 834,404 324 Petroleum and coal products manufacturing 2002 2,278 6.151% 212,420,583 6,314,476 105,922 1997 2,146 177,393,098 5,546,082 107,625 325 Chemical manufacturing 2002 13,107 -2.724% 427,728,297 40,769,896 790,186 1997 13,474 415,616,508 39,835,717 882,645 326 Plastics and rubber products manufacturing 2002 15,305 -9.013% 167,929,241 31,196,356 939,941 1997 16,821 159,161,346 29,804,904 1,023,060 327 Nonmetallic mineral product manufacturing 2002 16,579 1.649% 95,246,702 17,837,952 481,218 1997 16,310 86,464,708 16,172,049 501,471 331 Primary metal manufacturing 2002 5,952 17.652% 135,825,163 21,176,504 488,983 1997 5,059 168,117,728 23,811,233 605,085 332 Fabricated metal product manufacturing 2002 60,602 -2.857% 245,287,795 56,993,973 1,557,051 1997 62,384 242,813,453 56,631,583 1,763,772 333 Machinery manufacturing 2002 28,129 -8.072% 241,722,708 49,549,096 1,163,912 1997 30,599 270,687,165 53,012,226 1,420,512 334 Computer and electronic product manufacturing 2002 15,698 -9.963% 353,565,892 65,808,473 1,301,989 1997 17,435 439,381,300 72,483,848 1,691,146 335 Electrical equipment, appliance, and component manufacturing 2002 6,420 -7.359% 105,731,032 18,421,717 500,589 1997 6,930 112,116,267 18,972,741 593,802 336 Transportation equipment manufacturing 2002 12,264 -4.834% 619,563,779 80,769,470 1,646,354 1997 12,887 575,306,996 79,616,518 1,842,315 337 Furniture and related product manufacturing 2002 21,824 5.237% 73,214,697 16,490,676 570,976 1997 20,738 64,299,098 14,986,222 603,668 339 Miscellaneous manufacturing 2002 31,886 1.303% 124,507,754 26,823,179 746,820 1997 31,476 99,729,798 21,618,204 725,396 Top 3 increase Top 3 decrease 8 ...read more.

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