Karen Loving GAMMA- Business Economics Spring II Session 2010 The price of gasoline is definitely impacted by the principle of supply and demand. Consumers today use more oil causing an increase in the demand for oil, thus causing the price of gas to increase for consumers. (Consumers, 2008). There is usually an increase in demand between May and September which increases the price consumers pay during the summer driving season. Since there is usually a decline in the demand for gas during the winter months, the price tends to also decrease during this season.
Although demand plays an integral role in gas prices, research shows that there are four main factors that influence the price of gas consumers pay at the pump. The cost of crude oil is a factor which accounts for 55% of the price of gas. (Accounts, 2010). OPEC, an organization of 12 oil producing countries, produce approximately 46% of the world’s oil, was formed to regulate supply and to some extent, the price of oil. (OPEC, 2010). How much crude oil is being bought and sold for is attributed to 50% of the price of gas consumers pay. (Crude, 2010). The less crude oil produced, the price of gas will increase.
A higher supply produced, there tends to be a decrease in the price of gas. Refining costs, cost of distribution, and taxes are also major factors that influence the price of gas. Federal, state, and local taxes can sometimes account for 19% of the price consumers pay ; however, this number changes continuously and is based on the price of crude oil. (Federal, 2010). Taxes and distribution generally influence approximately 45% of gas prices. (Taxes, 2010) Since distribution and taxes re usually stable, the daily change in gas prices basically reflects the fluctuation in oil prices.
Occasionally, distribution lines are disrupted by weather related or natural disasters, or are down for maintenance, which can also create an increase in the price consumers pay at the pump, even if oil prices are actually down. Chapter 8: Question 1 1 The theory of competition rests on the following assumptions. (Theory, 2008). 1 . Competitive markets have many buyers and sellers 2. No barriers to market entry/exit 3. No control over price . No long run economic profits The Internet has helped create more competitive markets because it has created a technological advantage that clearly supports the theory of competition.
The Internet has provided a means to improve visibility of all businesses regardless of size and type to sell a product or provide a service through a fair an equitable channel. The Internet has created and caused the . Com industry to flourish over the years which has thus created an avenue for the establishment of many new businesses to enter the market to moment. Businesses can improve their global competitiveness and productivity with more efficient electronic transactions processing and instant access to information.
The Internet provided businesses with new tools and added convenience that can increase competitive advantage. It has provided consumers with access to products and services 24 hours per day” days a week with the ability to shop around and do more price comparisons for best deal without leaving their home. Many businesses offer lowest price guarantee here they will match or beat a competitor’s price and will send email notifications to advise when the price has dropped. The Internet has also created a channel for ground breaking innovative businesses such as Ebay and Principle to enter the market with enormous success.
The emergence of the Internet has forever changed the way of doing business and with the continuous enhancements and growth in technology, it will continue to create more competitive markets. Chapter 3: Question 14 As Cutbacks new premium blends move towards a new equilibrium, over time the firm would see an outward shift in the demand curve from the initial demand curve because due to the change in preference, consumers will pay more for the new premium blends and firms will thus produce more.
There are determinants of demand, excluding that will eventually affect demand and includes tastes and preferences, income, prices of related goods, number of buyers, and expectations. (Determinants, 2008). As the firm move towards new equilibrium, these determinants can affect the change in demand and can thus lead consumers to increase demand for inferior goods or cheaper substitutes. Ђ It demand grows relatively more than supply, the new equilibrium price will be higher. Ђ If demand grows relatively lower than supply, the new equilibrium price will be lower (If demand, 2010). When the supply curve or demand curves shifts, equilibrium also shifts, which will result in a new equilibrium price. (Supply, 2008). As demand increases, equilibrium price increases, and equilibrium output increases. If demand decreases, equilibrium price decreases, and equilibrium output also decreases. If a hard freeze eliminates Brazier’s premium coffee crop, the supply would decrease he equilibrium price would increase, while the equilibrium output would decrease.