The Economy...

[emb021 16]

"If the price was based on supply & demand, why does the price continue to go up? "

 

Inflation.

 

This is due to the Fed putting more worthless Federal Notes in circulation. The value of this notes is thus less, and the prices go up.

 

 

 

[evmori 11]

Watch the data. It changes daily. And there are days where there are big swings. Supply & demand doesn't change that fast! Right now, prices are dropping ever so slowly but you probably won't see it at the pump. And the cash price is up, not down.

 

Venividi,

 

Not really. If it was, why does the retail price continue to rise?(This message has been edited by evmori)

[GaHillBilly 10]

Evmori,

 

You are assuming that demand for gasoline and oil is limited to physical users of those commodities. As a result, you are looking at declining US physical demand and reaching the plausible, but mistaken, conclusion that gas prices are moving counter to demand.

 

In fact, demand for most commodities includes physical users + commodity brokers + investors + speculators. In the current world market, with the declining US dollar and Middle Eastern and West African political instability, oil prices are being driven in large part by investor and speculator "demand".

 

This was one reason that the Saudi's cited for declining Bush's request to significantly increase oil supply. They produce a 'heavy' oil that is not preferred for gasoline production. One of their royals was quoted as saying that oil production was adequate for physical demand now, and that they weren't going to engage in storing excess oil in off-shore tankers.

 

GaHillBilly

[Venividi 35]

 

>If it was, why does the retail price continue to rise?

 

Because users are willing to pay the increased price. i.e., there is continued demand even at the higher price levels.

 

 

GAhillbilly, great explanation.

[evmori 11]

>If it was, why does the retail price continue to rise?

 

Because users are willing to pay the increased price. i.e., there is continued demand even at the higher price levels.

 

Do users have a choice? The only choice is to park your vehicle & find another method to get around. For most of us, that isn't an option! Hence, they got us by the short hairs!

 

The willingness to pay a higher price does not equal a higher demand.

[Tokala 16]

I cringe everytime I read in the paper or see on the news a statement like: "gas prices will reach $4 soon." As soon as the media publishes a comment like that, it's like giving the gas companies the OK to raise the price. It's like the media is conditioning the customers to believe and giving the gas companies the ability to raise the price, warranted or not.

[Lisabob 13]

Ed, you've hit upon the concept of "inelastic demand." Oil is a strange commodity because unlike, say, coffee or bananas, there is no good, widely available substitute that people can just switch to when prices get too high. As you said, given our transportation infrastructure and economic basis, we're more or less stuck paying for gas since most of us do not live within walking/biking distance to work, don't have access to viable car-pools, and don't live or work anywhere near real public transportation. Solutions to these problems don't come overnight.

 

And by the way - the price for a barrel of oil on the world market has traditionally been figured in US Dollars. That's great (for us) when the dollar is strong, but when the dollar is weak internationally, it means that all those who buy and sell oil tend to raise the price (in dollars) to compensate for the dollar's declining worth. And that is not so good for US consumers, as we're seeing these days.

 

Lots and lots of pieces to this puzzle.

 

 

[John-in-KC 311]

While I agree with Lisa (fuel is pretty inelastic), the family income choices are more so.

 

There's been a lot less time in the restaurants recently, fewer movies, pooling errands, and personal leisure travel is out the door.

[FScouter 24]

"The willingness to pay a higher price does not equal a higher demand."

 

Inelastic demand is still demand. When you pay the price, you have "demanded" the product. When your tank is empty you demand it be filled.

 

There is speculation taking place in futures, and in tankers floating on the sea, waiting. The speculation is the see how much "demand" is out there. Ed, it's all about demand. There is no hidden conspiricy. Demand is when you insist on your right to solo drive your SUV to work. Demand is when you drive to the grocery store 3 times a week to pick up a loaf of bread, instead of once every 2 weeks. Demand is when you drive your kid to the bus stop instead of letting him walk. As long as you "demand" your right to have gas when the price goes up, it will continue to go up.

[evmori 11]

Inelastic demand is still demand. When you pay the price, you have "demanded" the product. When your tank is empty you demand it be filled.

 

If you don't have an option, it isn't demand. It is need. There no currently available good alternatives to gasoline powered vehicles. So when my tank is empty, I need to put gas in it so my vehicle will run. I have to pay the going price. I have no option.

 

Let us not forget that Exxon/Mobile made an enormous profit last year as did most oil companies! And we have how many new refineries?

[Lisabob 13]

I want to add another piece to the picture if I can. John started this discussion by asking about whether this downturn, recession, slump, whatever is "real" or largely a media invention or self-fulfilling prophecy, or what.

 

In our area, there's a town that has grown by leaps and bounds in the last decade due to low land prices, the housing boom in the late 90s/early 2000s, and (until recently) reasonable commuting distances from several regional cities. As a result the school district found itself overflowing with new students. The situation was untenable - not enough lockers and desks, not enough room in cafeterias and auditoriums for all-school activities, classrooms overflowing into trailers in the parking lots, etc.. They actually went to running a split schedule (where some students attend morning, others afternoon) to handle the overflow of students in the high school. Five years or so ago, they decided to build a new high school to relieve the pressure on the existing high school. Although money was a little tight 5 years ago, things were expected to improve by the time the building opened, thus making it economically viable.

 

Fast forward - the high school was built on a large lot on the outskirts of town where land is still fairly cheap. It is gorgeous, everything you could want in a setting for an adolescent's intellectual stimulation and growth. It was opened this year and got rave reviews from students, parents, teachers, everyone.

 

Next year that beautiful, functional, spanking new building will sit EMPTY while all the district's high school students are crammed back into the old (more centrally located) high school, because the economy just keeps getting worse around here. The state cut funding (yet again) for education due to budget short falls, and the district cannot afford to pay to operate 2 high schools, even though they're clearly needed. Apparently the straw that broke the camel's back? The district can't afford the rising gas prices that it would take next school year to get the buses to and from the new high school.

 

 

[FScouter 24]

Our district charges a $130 annual bus fee. Students may walk, bike, carpool, or take the bus. Just be in your places with bright shining faces when the bell rings.

[emb021 16]

From some comments, it appears that some don't understand economics or how the economy works.

 

Please obtain a copy of Henry Hazlit's classic "Economics in One Lesson" that is a easy and short introduction to free market economics and how it works (and how governement intervention makes things worse).

 

[evmori 11]

Our district charges a $130 annual bus fee. Students may walk, bike, carpool, or take the bus. Just be in your places with bright shining faces when the bell rings.

 

And every homeowner of every district pays school taxes regardless if they have kids in school or not. What's your point?

[hops_scout 9]

"And every homeowner of every district pays school taxes regardless if they have kids in school or not. What's your point?"

 

It's called being a public school. It's your own fault if you choose to pay for education twice by sending a child to a private school.

 

I also help pay for the Chicago Transportation System that can't support itself because of stupid spending. I have never once used it.