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Everyone's Gasoline Problem

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Business Economics GM545

September 2011 session

Everyone's Gasoline Problem.

The USA consumes 400 million gallons of gasoline every day. This high demand has increased gas prices to record highs. In Every month and sometimes more frequently, gas prices are going up or dropping but it has never been stable. Gasoline prices are affected by many factors, including the price of crude oil in the world market, supply and demand for gasoline, local market competition, temporary supply interruptions, government regulations, or taxes. In recent years, the world's demand for gasoline and diesel fuel increased so quickly. The gasoline prices is becoming problematic these days if the intent is to report moderate price increases regardless of what things actually cost. I looked at prices for gas in my area of the country, Chicago, IL. Comparing Chicago to the rest of the nation, today's average cost per gallon in the Chicago metro area is $3.899 per gallon. The USA average price per gallon is $3.602. Government regulations and additional requirements demanded by the state of Illinois.

Chapter 3/Q 14. If market is in equilibrium, it can move to disequilibrium only if there shift in demand curve or shift in supply curve. When a company like Starbucks introduces a new product line such as premium coffees you will see that Starbucks has one introduced something new to the market. With the introduction of the new coffee by Starbucks, typically this would have a negative effect on the overall equilibrium of the market with new competition, decreases the overall price of the regular coffee and makes a higher supply of it. If a hard freeze ruins Brazil's premium coffee crop, the consequence would be a shortage where at the lack of demand then consumers will turn back to regular coffee. The price of the premium coffee will raise due to reduced coffee supply, increased demand then the supply curve changes and also the demand curves.

Chapter 3/Q 15. Florida's crop is expected to be 132 million boxes of oranges for the 2006-07 seasons, down from 147.7 million boxes last year.

The production and output of orange is being reduced so there will be a decrease in supply. The supply curve will shift to the left. Also, there will be a shortage and the price of oranges will increase. Since these are both important suppliers, the price will rise significantly. There will be expectation of the shortage once the news of the freeze and reduction of production. While the impact on the current orange crop appears severe, large stocks of frozen orange juice concentrate were expected to prevent a shortage. From the proposal of increasing ethanol product from corn, the production



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