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Ecomomics Gm545

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Business Economics GM545
Course Project- Part 1

Exercise 1
Microeconomics Issue: Everyone’s Gasoline Problem
The recent history of gasoline prices in the North East part of the country, specifically Philadelphia, PA. has been consistently declining and according to sources such as the Associated Press prices will continue to fall. (See Exhibit 1)
Gasoline prices fluctuate for many reasons. The reason this happens is because of the following factors:
Seasonal Demands
Gas prices usually rise in the late spring and summer months because the demand for it is greater. During the summer months people drive more, they get out in the good weather, they go on vacation.
In winter gasoline prices usually go back down. Not many people are driving like they do in the summer so the quantity demanded is less.
Gas stations change their prices to stay competitive with other gas stations. The way it is now, some days a gas station will make more, and some days it will make less. Unfortunately, in the short run there are no substitutions for consumers to replace gas with, so we must pay the higher prices, because we are not able to switch to another type of fuel.
Supply and Demand
If the use of gas powered vehicles increases the demand for the fuel goes up. Usually when this happens it causes cost increases because of the extra production costs involved in supplying the product. The refineries have to work more to increase the quantity supplied, tankers and trucks work more to get the gas from the refineries to the gas stations.
If OPEC (Organization of Petroleum Exporting Countries) cuts oil production it greatly influences the world gasoline prices and supplies because Most of the world's oil supply is found in the countries belonging to OPEC. The reason gas prices are so volatile in the states is that gas is completely unregulated here. In other…...

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