Chip Taylor

Gasoline prices

Craig Newmark notes that the FTC has found that they are determined by supply and demand.

Who knew?

Still not clear. Here are the key points from the FTC press release:

The Phoenix example provides three basic lessons regarding the supply of and demand for gasoline and the prices that consumers pay. First, in general, the price of gasoline reflects producers’ costs and consumers’ willingness to pay. Gasoline prices rise if it costs more to produce and supply gasoline, or if people wish to buy more gasoline at the current price. Gasoline prices fall if it costs less to produce and supply gasoline, or if people wish to buy less gasoline at the current price.

Second, how consumers respond to price changes will affect how high prices rise and how far they fall. Limited substitutes for gasoline restrict the options available to consumers to respond to price increases. Consumers can change their driving habits, walk, ride a bike, take the bus or the subway, or eventually buy more efficient vehicles, but these are difficult choices.

Third, how producers respond to price changes will affect how much prices rise or fall. In general, when there is not enough of a product to meet consumers’ demands at current prices, higher prices will signal a potential profit opportunity and may bring additional supply into the market. Phoenix is a good illustration of these principles – principles that also apply to the nation as a whole.

I wish I had a nickel for every time someone I know has complained that oil companies raise the price of gasoline every summer "right when everyone wants to use more." Well, duh!