[Vision2020] Gas prices...........

[Kenneth Marcy]

On Friday 08 August 2008 11:24, lfalen wrote:
> I don't think you are quite right. Supply and demand still play a part in 
> gas prices. There are other things that do play a part such as high gas  
> taxes. Other people such as Jeff Harkins can give you a more detailed    
> explanation. You might also check the web sites for Thomas Sewell, the   
> Cato Institute The Milton Friedman Foundation or the Heritage Foundation.

Yes, supply and demand do "play a part in gas prices." Do supply and demand 
solely control gas prices? No. The economics literature clearly shows that 
gas prices respond asymmetrically to crude oil prices, that is, gas prices 
go up quickly when crude prices go up, and gas prices come down more slowly 
when crude prices go down. Why? Because short run market power exists among 
retail gasoline sellers. [NBER 4138]

The fact of the matter is that not only are gasoline prices at all-time 
highs, they are also at all-time inflation-adjusted highs. These highs were 
not achieved by consumer demand at the pumps alone. They were pushed upward 
faster by sellers who want to capitalize on consumer fears, and profit from 
the turbulent unrest in contemporary news.

Economist Paul Samuelson wrote 44 years ago in his textbook about cost-push 
or sellers' inflation, a decade before the first oil embargo. Similar 
principles apply now, with the higher "cost" being simply the higher level 
profitability demanded by the oil industry, which the industry is confident 
of achieving from its present higher degree of oligopolistic control of 
national markets. Exxon's most recent record-breaking profits illustrate 
the success of the industry's strategy.


Ken