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Will Gas Prices Drop

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  • pg 1
									                 Who is In Control of Gas Prices
    Gasoline prices rise again and another cry goes out that something should be
done about it. Perhaps price controls are the answer. NO!
    Here is how price controls work.
    1.   Government sets price guidelines
    2.   Producers have less incentive to produce
    3.   Shortages result
    4.   Consumers are unable to find adequate supply
    5.   Government removes controls
    6.   Prices skyrocket.

                                      Why?
    It is a simple rule of economics in a capitalistic society. Price is determined by
supply and demand. When demand exceeds supply, prices rise. When supply
exceeds demand prices fall. In an idealistic situation equilibrium is reached where
everyone is happy.
      In more depth: When demand rises, prices rise giving more incentive for
producers to meet demand. This will attract more people to the industry resulting
in greater supplies. Eventually supply exceeds demand and prices begin to fall.
There is less incentive for producers and some will leave the industry. This trend
will continue until equilibrium is reached.
     To put it another way, let’s say that you are a pencil salesman. You purchase
pencils at wholesale and sell all that you have in one day. The next day you
purchase more and sell them all again. The next day you raise your price from
25¢ to 50¢ and you sell just as many. You will likely keep raising your price until
sales begin to taper off and settle at a price where profit is maximized. Also
remember, others will notice your profitability and will join in your enterprise.
Increased demand at the wholesale level will affect wholesale prices,
manufacturer prices, cost of raw materials, etc.
     Now we have the same situation with “Gasoline Prices.” Prices go up and
everyone complains but no one does anything about it. Excuses are used such as,
“I have to get to work.” “I’m not going to give up visiting my parents.” “I can’t do
anything about it.” So prices continue to rise. Demand does not go down. SUV’s
with one occupant still speed down the highways at 120km per hour. Very few
people do anything at all to reduce their consumption. This provides the suppliers
with incentive to raise the price again and to keep doing so until demand drops.
The only thing we can do to cause gas prices to drop is to use less gas.
    If the trend to higher prices continues, here is what will happen.
    1. Everything that relies on transportation for production or marketing will
       go up in price due to increased cost of getting supplies and getting
       product to market.
    2. Eventually lower income families will not be able to afford gasoline.
    3. It will no longer be economically feasible for lower wage earners to get to
       work.
     When this happens, the economy will be in chaos. Companies will be
scrambling to find ways to get their employees to work; There will be an
increased demand on the welfare system; All this when the necessities of life will
have reached record high prices. Starvation and malnutrition will place an
increased demand on the already taxed medical system as we watch our country
reach third world county status.
    So what can we do? Use less gas. Buy fuel efficient smaller cars. Use less
gas. Carpool. Drive at an energy efficient speed. Use less gas. Try to complete
all errands on one trip. Leave your car at home. Use less gas. Walk. Bicycle. Use
less gas. Take a bus. Do anything that reduces Gasoline consumption. Use less
gas.
    What doesn’t work!
    I’ve already discussed why price controls won’t work, so let’s look at
boycotting.
    Boycotting
    A general boycott will not work unless overall use is reduced. To
pick a day not to buy gas only reduces demand for one day. The days
before and after the boycott will be unusually busy days that will well
make up for the one slow day. This will only be felt at the retail level
and it is highly unlikely the suppliers will even notice.
    Boycotting certain companies will put increased demand on the
others. At a time when demand is already high, this will cause these
companies to raise prices even higher. They will likely have to go to the
boycotted companies to purchase additional gas to meet this new
demand. They boycotted companies will now be able to sell their gas
wholesale for the same price they were getting retail without the need
for retail marketing. They will be very grateful to you although their
retailers will have to find new supplies (i.e. they will change brand
name).
     So far I haven’t heard of any other plans, so it looks like we only have two
alternatives.
    1. Use less gas
    2. Learn to live with every increasing gas prices.
    So who is really in control of gas prices? That would be me and you and
everyone that uses gas.
    Submitted by
    George McNeish
    PO Box 404
    Alvinston, ON
    N0N 1A0
    werdigital@yahoo.ca
    519-898-5341

								
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